Abstract
Auctions are used by local Chinese governments to raise revenue while releasing land for development. Because developers reveal their valuation of parcels through winning, bids for land use rights in subsequent auctions may be influenced by outcomes of earlier government sales. A log linear hedonic regression analysis of more than 900 residential land use rights auctions in Chengdu over eight years reveals that top developers’ winning bids signal other developers who adjust their bids in subsequent auctions. Developers appear to believe that the top companies possess superior knowledge through research, experience, or insider information. The results are higher government revenue and rising land prices, which can lead to lessened competition among housing developers, higher house prices, and affordability problems in neighbourhoods where the top developers buy land.
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