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Bidding up, buying out and cooling-off: an examination of auctions with withdrawal rights

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Author Info

  • John Asker

    ()
    (Department of Economics, Harvard University, Littauer Center, 1875 Cambridge St, Cambridge, MA 02138, USA)

Abstract

This paper considers a model in which bidders in an auction are faced with uncertainty as to their final valuation of the auctioned object. This uncertainty is resolved after the auction has taken place. It is argued that the inclusion of a cooling-off right raises the expected revenue to the seller when bidders face a risk of the object being a strict `bad', in that owning the object incurs negative utility to the winner of the auction. The model is then tested in a laboratory setting. The evidence from this experiment supports the predictions of the theory.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 16 (2000)
Issue (Month): 3 ()
Pages: 585-611

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Handle: RePEc:spr:joecth:v:16:y:2000:i:3:p:585-611

Note: Received: April 23, 1999; revised version: March 20, 2000
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Related research

Keywords: Auctions; Withdrawal rights; Auction experiments; Cooling-off rights.;

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Cited by:
  1. Eric Rasmusen, 2007. "Getting Carried Away in Auctions as Imperfect Value Discovery," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2007-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Peter Eso & Lucy White, 2001. "Precautionary Bidding in Auctions," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1331, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Ottorino Chillemi & Claudio Mezzetti, 2014. "Optimal procurement mechanisms: bidding on price and damages for breach," Economic Theory, Springer, Springer, vol. 55(2), pages 335-355, February.

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