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Credible Sales Mechanisms and Intermediaries

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  • David McAdams
  • Michael Schwarz

Abstract

We consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers. This in turn induces the seller to bargain at length with buyers, even if doing so is costly. When the seller's cost of soliciting another round of offers is either very large or very small, the seller credibly commits to an auction and experiences negligible bargaining costs. Otherwise, there may be several rounds of increasing offers and significant seller losses. In these situations, an intermediary with a sufficiently valuable reputation and/or weak marginal incentives regarding price can create value by credibly committing to help sell the object without delay. (JEL C78, D44)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 1 (March)
Pages: 260-276

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:1:p:260-276

Note: DOI: 10.1257/aer.97.1.260
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References

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  1. Ellison, Glenn & Fudenberg, Drew & Mobius, Markus, 2010. "Competing Auctions," Staff General Research Papers 32106, Iowa State University, Department of Economics.
  2. Helmut Bester & Joszef Sakovics, . "Delegated Bargaining and Renegotiation," Papers 007, Departmental Working Papers.
  3. Sobel, Joel, 1981. "Distortion of Utilities and the Bargaining Problem," Econometrica, Econometric Society, vol. 49(3), pages 597-619, May.
  4. Bester, H., 1993. "Price Commitment in Search Markets," Papers 9309, Tilburg - Center for Economic Research.
  5. McAdams, David & Schwarz, Michael, 2007. "Who pays when auction rules are bent?," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1144-1157, October.
  6. Hannu Vartiainen, 2003. "Auction Design without Commitment," Working Papers 2003.24, Fondazione Eni Enrico Mattei.
  7. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
  8. Paul Klemperer, 2000. "What Really Matters in Auction Design," Economics Series Working Papers 2000-W26, University of Oxford, Department of Economics.
  9. McLaughlin, Robyn M., 1990. "Investment-banking contracts in tender offers : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 209-232.
  10. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms -super-1," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1085-1111.
  11. Marc S. Robinson, 1985. "Collusion and the Choice of Auction," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 141-145, Spring.
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Cited by:
  1. Jeremy Bulow & Paul Klemperer, 2007. "When are Auctions Best?," Economics Papers 2007-W03, Economics Group, Nuffield College, University of Oxford.
  2. Vasiliki Skreta, 2013. "Optimal Auction Design Under Non-Commitment," Working Papers 13-08, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Charles J. Thomas, 2012. "An Alternating-Offers Model of Multilateral Negotiations," Working Papers 12-31, Chapman University, Economic Science Institute.
  4. Paul Klemperer & Jeremy Bulow, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Series Working Papers 2009-W05, University of Oxford, Department of Economics.
  5. Wambach, Achim & Gretschko, Vitali, 2013. "Auctions vs. Negotiations: The Case of Favoritism," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79774, Verein für Socialpolitik / German Economic Association.
  6. Paul Milgrom, 2006. "Incentives in Core-Selecting Auctions," Levine's Bibliography 321307000000000503, UCLA Department of Economics.
  7. Qingmin Liu & Konrad Mierendorff & Xianwen Shi, 2013. "Auctions with Limited Commitment," Working Papers tecipa-504, University of Toronto, Department of Economics.
  8. Gustavo Rodriguez, 2012. "Sequential auctions with imperfect quantity commitment," Economic Theory, Springer, vol. 49(1), pages 143-173, January.
  9. Johannes Horner & Larry Samuelson, 2009. "Managing Strategic Buyers," Levine's Working Paper Archive 814577000000000059, David K. Levine.

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