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Best foot forward or best for last in a sequential auction?

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  • Archishman Chakraborty
  • Nandini Gupta
  • Rick Harbaugh

Abstract

Should a seller with private information sell the best or worst goods first? Considering the sequential auction of two stochastically equivalent goods, we find that the seller has an incentive to impress buyers by selling the better good first because the seller’s sequencing strategy endogenously generates correlation in the values of the goods across periods. When this impression effect is strong enough, selling the better good first is the unique pure-strategy equilibrium. By credibly revealing to all buyers the seller’s ranking of the goods, an equilibrium strategy of sequencing the goods reduces buyer information rents and increases expected revenues in accordance with the linkage principle.

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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 1 (03)
Pages: 176-194

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Handle: RePEc:bla:randje:v:37:y:2006:i:1:p:176-194

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References

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  1. Claessens, Stijn & Djankov, Simeon, 2002. "Privatization benefits in Eastern Europe," Journal of Public Economics, Elsevier, vol. 83(3), pages 307-324, March.
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  6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  7. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  8. Victor Ginsburgh, 1998. "Absentee bidders and the declining price anomaly in wine auctions," ULB Institutional Repository 2013/1701, ULB -- Universite Libre de Bruxelles.
  9. Victor Ginsburgh & Pierre-Michel Menger, 1996. "Economics of the arts: selected essays," ULB Institutional Repository 2013/1655, ULB -- Universite Libre de Bruxelles.
  10. Audra L. Boone & J. Harold Mulherin, . "Corporate Restructuring and Corporate Auctions," Claremont Colleges Working Papers 2002-38, Claremont Colleges.
  11. Nandini Gupta & John Ham & Jan Svejnar, 2000. "Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic," Econometric Society World Congress 2000 Contributed Papers 1580, Econometric Society.
  12. Luton, Richard & McAfee, R. Preston, 1986. "Sequential procurement auctions," Journal of Public Economics, Elsevier, vol. 31(2), pages 181-195, November.
  13. Archishman Chakraborty & Rick Harbaugh, 2003. "Ordinal Cheap Talk," Claremont Colleges Working Papers 2003-05, Claremont Colleges.
  14. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2002. "Seller Cheap Talk in Common Value Auctions," Claremont Colleges Working Papers 2002-30, Claremont Colleges.
  15. Archishman Chakraborty & Nandini Gupta, 2004. "Ordinal Cheap Talk in Common Value Auctions," Econometric Society 2004 North American Winter Meetings 605, Econometric Society.
  16. Donald B. Hausch, 1986. "Multi-Object Auctions: Sequential vs. Simultaneous Sales," Management Science, INFORMS, vol. 32(12), pages 1599-1610, December.
  17. Raviv, Yaron, 2006. "New Evidence on Price Anomalies in Sequential Auctions: Used Cars in New Jersey," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 301-312, July.
  18. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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Citations

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Cited by:
  1. Grether, David M. & Plott, Charles R., 2009. "Sequencing strategies in large, competitive, ascending price automobile auctions: An experimental examination," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 75-88, August.
  2. Gupta, Nandini & Ham, Jhon C. & Svejnar, Jan, 2008. "Priorities and sequencing in privatization: Evidence from Czech firm panel data," European Economic Review, Elsevier, vol. 52(2), pages 183-208, February.
  3. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
  4. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Archishman Chakraborty & Rick Harbaugh, 2003. "Ordinal Cheap Talk," Claremont Colleges Working Papers 2003-05, Claremont Colleges.
  6. Archishman Chakraborty & Rick Harbaugh, 2010. "Persuasion by Cheap Talk," American Economic Review, American Economic Association, vol. 100(5), pages 2361-82, December.
    • Archishman Chakraborty & Rick Harbaugh, 2006. "Persuasion by Cheap Talk," Working Papers 2006-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Oct 2009.
  7. Eric Schmidbauer, 2013. "New and Improved?," Working Papers 2013-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  8. Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.
  9. Archishman Chakraborty & Rick Harbaugh, 2004. "Comparative Cheap Talk," Working Papers 2004-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  10. Paul Pezanis-Christou, 2013. "Asymmetric Multiple-Object First-Price Auctions," School of Economics Working Papers 2013-07, University of Adelaide, School of Economics.

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