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Credible Sales Mechanisms and Intermediaries

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Author Info
David McAdams
Michael Schwarz

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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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File URL: http://hdl.handle.net/10.1257/aer.97.1.260
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Publisher 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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Sobel, Joel, 1981. "Distortion of Utilities and the Bargaining Problem," Econometrica, Econometric Society, vol. 49(3), pages 597-619, May. [Downloadable!] (restricted)
  2. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 1085-1111, October. [Downloadable!] (restricted)
  3. Bester, Helmut, 1994. "Price commitment in search markets," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 109-120, September. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Bester, Helmut & Sakovics, Jozsef, 2001. "Delegated bargaining and renegotiation," Journal of Economic Behavior & Organization, Elsevier, vol. 45(4), pages 459-473, August. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. Glenn Ellison & Drew Fudenberg & Markus Mobius, 2003. "Competing Auctions," Levine's Bibliography 506439000000000092, UCLA Department of Economics. [Downloadable!]
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  8. Marc S. Robinson, 1985. "Collusion and the Choice of Auction," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 141-145, Spring. [Downloadable!] (restricted)
  9. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jeremy I. Bulow & Paul D. Klemperer, 2007. "When are Auctions Best?," NBER Working Papers 13268, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Johannes Horner & Larry Samuelson, 2009. "Managing Strategic Buyers," Levine's Working Paper Archive 814577000000000059, David K. Levine. [Downloadable!]
  3. Johannes Horner & Larry Samuelson, 2008. "Managing Strategic Buyers," Cowles Foundation Discussion Papers 1684, Cowles Foundation, Yale University. [Downloadable!]
  4. Vasiliki Skreta, 2008. "Optimal Auction Design Under Non-Commitment," Working Papers 08-14, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  5. Paul Milgrom, 2006. "Incentives in Core-Selecting Auctions," Levine's Bibliography 321307000000000503, UCLA Department of Economics. [Downloadable!]
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