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Selling to Advised Buyers

Author

Listed:
  • Andrey Malenko
  • Anton Tsoy

Abstract

In many cases, buyers are not informed about their valuations and rely on experts, who are informed but biased for overbidding. We study auction design when selling to such "advised buyers." We show that a canonical dynamic auction, the English auction, has a natural equilibrium that outperforms standard static auctions in expected revenues and allocative efficiency. The ability to communicate as the auction proceeds allows for more informative communication and gives advisors the ability to persuade buyers into overbidding. The same outcome is the unique equilibrium of the English auction when bidders can commit to contracts with their advisors.

Suggested Citation

  • Andrey Malenko & Anton Tsoy, 2019. "Selling to Advised Buyers," American Economic Review, American Economic Association, vol. 109(4), pages 1323-1348, April.
    • Handle: RePEc:aea:aecrev:v:109:y:2019:i:4:p:1323-48
    Note: DOI: 10.1257/aer.20170334
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    Citations

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    Cited by:

    1. Debasis Mishra & Kolagani Paramahamsa, 2022. "Selling to a principal and a budget-constrained agent," Discussion Papers 22-02, Indian Statistical Institute, Delhi.
    2. Briana Chang & Martin Szydlowski, 2020. "The Market for Conflicted Advice," Journal of Finance, American Finance Association, vol. 75(2), pages 867-903, April.
    3. Debasis Mishra & Kolagani Paramahamsa, 2022. "Selling to a principal and a budget-constrained agent," Papers 2202.10378, arXiv.org, revised Jul 2022.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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