Strategic Sequential Bidding for Government Land Auction Sales – Evidence from Singapore

This paper studies the extent to which equilibrium auction prices are affected by the order of sale and the extent of product differentiation in the context of government land auction sales. We propose a simple two-stage differentiated duopoly model where an incumbent winner of land from a previous auction bids on a new piece of land with the anticipation of competition between developed properties on both land parcels. Our simple model suggests that the closer substitutes both plots of land are, the more likely that the incumbent will bid higher. The model also predicts that the incumbent will bid higher than the winning price of the previous parcel, but may not necessarily win the bid. Using a unique dataset that covers the universe of tendering prices submitted by all developers for all residential land auction sales in Singapore, we test this theory and find that a tenderer's bids are higher where there was a previous piece of land sold within two years and located within four kilometers. The price margin decreases with distance and time. Moreover, by comparing the sequential bidding behavior of the incumbent and the second highest bidder with slightly lower bid, we show that the incumbent is more likely to participate in subsequent auction sales, especially for closer sites. The evidence on winning the same site is insignificant, consistent with our model predictions