IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v14y2005i4p813-847.html
   My bibliography  Save this article

The Buyer's Option in Multi‐Unit Ascending Auctions: The Case of Wine Auctions at Drouot

Author

Listed:
  • Philippe Février
  • William Roos
  • Michael Visser

Abstract

This paper studies multi‐unit ascending (English) auctions with a buyer's option. The buyer's option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines…) that are tested using a unique data set on wine auctions held at the Paris‐based auction house Drouot. We also analyze why the buyer's option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer's option does not affect the seller's revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time‐saving effect seems thus to be the primary purpose of the buyer's option.

Suggested Citation

  • Philippe Février & William Roos & Michael Visser, 2005. "The Buyer's Option in Multi‐Unit Ascending Auctions: The Case of Wine Auctions at Drouot," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 813-847, December.
    • Handle: RePEc:bla:jemstr:v:14:y:2005:i:4:p:813-847
    DOI: 10.1111/j.1530-9134.2005.00084.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1530-9134.2005.00084.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1530-9134.2005.00084.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-505, May.
    2. Victor A. Ginsburgh, 1998. "Absentee Bidders and the Declining Price Anomaly in Wine Auctions," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1302-1331, December.
    3. Gerard J. van den Berg & Jan C. van Ours & Menno P. Pradhan, 2001. "The Declining Price Anomaly in Dutch Dutch Rose Auctions," American Economic Review, American Economic Association, vol. 91(4), pages 1055-1062, September.
    4. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, vol. 78(2), pages 333-357, June.
    5. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    6. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    2. Ali, Héla Hadj & Lecocq, Sébastien & Visser, Michael, 2010. "The Impact of Gurus: Parker Grades and en primeur Wine Prices," Journal of Wine Economics, Cambridge University Press, vol. 5(1), pages 22-39, April.
    3. Philippe Février & Laurent Linnemer & Michael Visser, 2007. "Buy or wait, that is the option: the buyer's option in sequential laboratory auctions," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 98-118, March.
    4. Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ginsburgh, V. & van Ours, J.C., 2003. "How to Organize Sequential Auctions : Results of a Natural Experiment by Christie's," Other publications TiSEM 01ec6d80-7501-441c-a60b-c, Tilburg University, School of Economics and Management.
    2. Olivier Chanel & Stéphanie Vincent, 2004. "Computing price trends in sequential auctions," Recherches économiques de Louvain, De Boeck Université, vol. 70(4), pages 443-460.
    3. Ingebretsen Carlson, Jim & Wu, Tingting, 2018. "Shill Bidding and Information in Sequential Auctions: A Laboratory Study," Working Papers 2018:18, Lund University, Department of Economics.
    4. Lamy, Laurent & Patnam, Manasa & Visser, Michael, 2016. "Correcting for Sample Selection From Competitive Bidding, with an Application to Estimating the Effect of Wages on Performance," CEPR Discussion Papers 11376, C.E.P.R. Discussion Papers.
    5. Dejan Trifunovic, 2014. "Sequential Auctions And Price Anomalies," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 59(200), pages 7-42, January –.
    6. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
    7. Guerci, E. & Kirman, A. & Moulet, S., 2014. "Learning to bid in sequential Dutch auctions," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 374-393.
    8. Mezzetti, Claudio, 2008. "Aversion to Price Risk and the Afternoon Effect," The Warwick Economics Research Paper Series (TWERPS) 857, University of Warwick, Department of Economics.
    9. Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.
    10. Audrey Hu & Liang Zou, 2014. "Sequential Auctions, Price Trends, and Risk Preferences," Tinbergen Institute Discussion Papers 14-139/I, Tinbergen Institute.
    11. Longstaff, Francis A & Han, Bing & Merrill, Craig, 2004. "Revenue Implications of Multi-Item Multi-Unit Auction Designs: Empirical Evidence from the U.S. Treasury Buyback Auctions," University of California at Los Angeles, Anderson Graduate School of Management qt7344v866, Anderson Graduate School of Management, UCLA.
    12. Sanna Laksa & Daniel Marszalec, 2020. "Morning-Fresh: Declining Prices and the Right-to-Choose in a Faroese Fish Market," CIRJE F-Series CIRJE-F-1141, CIRJE, Faculty of Economics, University of Tokyo.
    13. Audrey Hu & Liang Zou, 2016. "Sequential Auctions with Generalized Interdependent Values," Tinbergen Institute Discussion Papers 16-016/I, Tinbergen Institute.
    14. Ghosh, Gagan & Liu, Heng, 2021. "Sequential auctions with ambiguity," Journal of Economic Theory, Elsevier, vol. 197(C).
    15. Boudreau, James W. & Shunda, Nicholas, 2016. "Sequential auctions with budget constraints: Evidence from fantasy basketball auction drafts," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 62(C), pages 8-22.
    16. Owen R. Phillips & Dale J. Menkhaus & Kalyn T. Coatney, 2003. "Collusive Practices in Repeated English Auctions: Experimental Evidence on Bidding Rings," American Economic Review, American Economic Association, vol. 93(3), pages 965-979, June.
    17. Andrew Sweeting, 2012. "Dynamic Pricing Behavior in Perishable Goods Markets: Evidence from Secondary Markets for Major League Baseball Tickets," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1133-1172.
    18. Yixin Lu & Alok Gupta & Wolfgang Ketter & Eric van Heck, 2019. "Information Transparency in Business-to-Business Auction Markets: The Role of Winner Identity Disclosure," Management Science, INFORMS, vol. 65(9), pages 4261-4279, September.
    19. Ola Andersson & Tommy Andersson, 2017. "Timing and presentation effects in sequential auctions," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 2(1), pages 39-55, December.
    20. Wedad Elmaghraby, 2005. "The Effect of Asymmetric Bidder Size on an Auction's Performance: Are More Bidders Always Better?," Management Science, INFORMS, vol. 51(12), pages 1763-1776, December.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:14:y:2005:i:4:p:813-847. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.