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Auctions with imperfect commitment when the reserve may signal the cost to re-auction

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  • Jun, Byoung Heon
  • Wolfstetter, Elmar G.

Abstract

If bidders are uncertain whether the auctioneer sticks to the announced reserve, they respond with strategic non-participation, speculating that the auctioneer may revoke the reserve. However, the reserve inadvertently signals the auctioneer's type, which drives multiplicity of equilibria. Eliminating belief systems that violate the “intuitive criterion” yields a unique equilibrium reserve price equal to the seller's consumption value. Paradoxically, even if bidders initially believe that the auctioneer is bound by his reserve almost with certainty, commitment has no value. Commitment is a shorthand for a high cost to re-auction, which may reflect a concern for reputation. Several variations of the model assess the robustness of our results.

Suggested Citation

  • Jun, Byoung Heon & Wolfstetter, Elmar G., 2015. "Auctions with imperfect commitment when the reserve may signal the cost to re-auction," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 11-21.
    • Handle: RePEc:eee:indorg:v:40:y:2015:i:c:p:11-21
    DOI: 10.1016/j.ijindorg.2015.02.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Signaling; Imperfect commitment;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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