Auctions with options to re-auction

Grant, Simon, Kajii, Atsushi, Menezes, Flavio and Ryan, Matthew J. (2006) Auctions with options to re-auction. International Journal of Economic Theory, 2 1: 17-39. doi:10.1111/j.1365-2966.2006.0022.x

Author Grant, Simon
Kajii, Atsushi
Menezes, Flavio
Ryan, Matthew J.
Title Auctions with options to re-auction
Journal name International Journal of Economic Theory   Check publisher's open access policy
ISSN 1742-7355
Publication date 2006-03
Sub-type Article (original research)
DOI 10.1111/j.1365-2966.2006.0022.x
Volume 2
Issue 1
Start page 17
End page 39
Total pages 23
Place of publication Oxford, United Kingdom
Publisher Wiley-Blackwell Publishing
Language eng
Formatted abstract
A seller has one unit to sell using an English auction mechanism similar to internet auction markets, such as eBay. Bidders appear according to a random arrival process. The seller chooses a reserve price and duration for each auction. If the reserve is not met, the seller passes in the object and conducts another auction with a new, randomly chosen, set of bidders. We distinguish reserves that embody an institutional commitment not to sell below that price, from those that do not. In each case, we find the optimal reserve price and the optimal auction duration. Without price commitment, the equilibrium reserve is too low for allocative efficiency, whereas the optimal reserve with commitment is shown to be too high when the distribution of bidder valuations exhibits an increasing hazard rate. It might even be socially preferable to allow reserve price commitments. With respect to duration, a version of the Diamond paradox afflicts sellers who cannot commit to price; auctions facilitate valuable duration commitments that increase buyer competition and raise expected revenue. With commitment, price posting (equivalent to a zero-length auction) is the dominant selling mechanism.
Keyword Auctions
Price posting
Reserve price
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
School of Economics Publications
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Created: Tue, 20 Sep 2011, 15:51:20 EST by Alys Hohnen on behalf of School of Economics