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An "Alternating Recognition" Model of English Auctions

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  • Ronald M. Harstad

    ()
    (Faculty of Management and RUTCOR, Rutgers University, 640 Bartholomew Road, Piscataway, New Jersey 08854-8003)

  • Michael H. Rothkopf

    ()
    (Faculty of Management and RUTCOR, Rutgers University, 640 Bartholomew Road, Piscataway, New Jersey 08854-8003)

Abstract

We present an alternative abstraction of an English (oral ascending) auction to the standard, in Milgrom and Weber (1982), that accords more closely with practices in some auction markets. In particular, the assumptions that exits are irrevocable and necessarily public are dropped, making endogenous the decision to compete silently and privately, or openly. In the model, the price rises in a stylization of an auctioneer alternately recognizing two bidders who affirm willingness to pay the current price. The auctioneer pays attention to other bidders only when a recognized bidder exits. Such exits may be temporary, although we construct an equilibrium in which there is no benefit to exit and reentry. The number of public exits is stochastic; frequently a losing "bidder" will remain silent, giving no indication of his willingness to pay, and hence yielding no useful inference about his private information. Thus, the source of the expected revenue advantage of English auctions over second-price auctions is only stochastically available. Moreover, when public exits are incomplete, the ordinal rank of the bidder whose private information can be inferred is unknown, making that information less valuable. Consequently, the simpler formula for expected revenue in second-price auctions may be the preferred approximation for English auctions.

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File URL: http://dx.doi.org/10.1287/mnsc.46.1.1.15128
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 46 (2000)
Issue (Month): 1 (January)
Pages: 1-12

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Handle: RePEc:inm:ormnsc:v:46:y:2000:i:1:p:1-12

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Related research

Keywords: Competitive Bidding; Oral Auctions; Auction Theory; Information Disclosure in Auctions;

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Cited by:
  1. Ronald M. Harstad, 2007. "Does a Seller Really Want Another Bidder?," Working Papers 0711, Department of Economics, University of Missouri.
  2. Ronald M Harstad, 2011. "Endogenous Competition Alters the Structure of Optimal Auctions," ISER Discussion Paper 0816, Institute of Social and Economic Research, Osaka University.
  3. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, 06.
  4. Ronald M. Harstad, 2005. "Rational Participation Revolutionizes Auction Theory," Working Papers 0504, Department of Economics, University of Missouri.
  5. Yin, Pai-Ling, 2007. "Empirical tests of information aggregation," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1179-1189, December.

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