How Do Land Auction Formats Influence the Market Structure and Aggregate Surplus of Real Estate Development?

This article proposes a duopoly dynamic game theoretic model to investigate the market structure and aggregate surplus of real estate development when land is sold in a sealed-bid first price auction vis-à-vis an open English auction. It relaxes the assumption of symmetric bidders. The land values have common value and private value components. We find that the sealed-bid first price auction introduces competition in the real estate development market. The open English auction leads a monopoly market. State agencies are recommended to increase the aggregate surplus of real estate development by publishing past bidding information under the sealed-bid first price auction and reducing information asymmetry between bidders