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Auctions with options to re‐auction

Author

Listed:
  • Simon Grant
  • Atsushi Kajii
  • Flavio Menezes
  • Matthew J. Ryan

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.

Suggested Citation

  • Simon Grant & Atsushi Kajii & Flavio Menezes & Matthew J. Ryan, 2006. "Auctions with options to re‐auction," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(1), pages 17-39, March.
    • Handle: RePEc:bla:ijethy:v:2:y:2006:i:1:p:17-39
    DOI: 10.1111/j.1365-2966.2006.0022.x
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    Cited by:

    1. Onur A. Koska & Frank Stähler, 2022. "Reserve Prices as Signals," Working Papers in Economics 22/10, University of Canterbury, Department of Economics and Finance.
    2. Eda Gülşen & Erdal Özmen, 2017. "Monetary Policy Trilemma, Inflation Targeting And Global Financial Crisis," ERC Working Papers 1714, ERC - Economic Research Center, Middle East Technical University, revised Nov 2017.
    3. Flávio Menezes & Matthew Ryan, 2009. "Coasian dynamics in repeated English auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 38(3), pages 349-366, November.
    4. Octavian Carare, 2012. "Reserve Prices in Repeated Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(3), pages 225-247, May.
    5. Glowicka, Ela & Beck, Jonathan, 2006. "A note on reserve price commitments in the Vickrey auction," MPRA Paper 6669, University Library of Munich, Germany.
    6. Simon Grant & Atsushi Kajii & Flavio Menezes & Matthew J. Ryan, 2006. "Auctions with options to re‐auction," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(1), pages 17-39, March.
    7. Tsuchihashi, Toshihiro, 2012. "Sequential Internet auctions with different ending rules," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 583-598.
    8. Onur A. Koska & Frank Stähler, 2017. "When should bidders learn reserve prices?," ERC Working Papers 1712, ERC - Economic Research Center, Middle East Technical University, revised Oct 2017.

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    JEL classification:

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

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