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Opening Bid Strategies in English Auctions - a Study from the Norwegian Real Estate Market

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  • Ole Jakob Sønstebø

Abstract

Auctions have been used as a pricing mechanism for a wide range of goods over thousands of years. In contrast to common practice in most of the world, auctions also have a central place in the Norwegian real estate market, even for non-distressed properties and in non-boom markets. However, there exists little empirical evidence for optimal bidding strategies from real estate auctions. By using unique bidding journal data from 2280 dwellings sold in the Trondheim region, this paper compares price premiums for two distinct bidding strategies – placing a low or a high opening bid. Results indicate that, on average, placing a low opening bid yields the lower price premium. Furthermore, while a higher number of bidders increases the price premium, this paper finds evidence that signaling and intimidation in the form of placing a high opening bid has a negative impact on the number of bidders compared to placing a low opening bid. However, results show that the strategy fails in reducing the number of bidders more than a medium sized opening bid does.

Suggested Citation

  • Ole Jakob Sønstebø, 2018. "Opening Bid Strategies in English Auctions - a Study from the Norwegian Real Estate Market," ERES eres2018_231, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2018_231
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    More about this item

    Keywords

    Asset Pricing; English auctions; Real estate auctions;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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