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Best Foot Forward or Best for Last in a Sequential Auction?

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Author Info
Archishman Chakraborty (CUNY-Baruch College)
Nandini Gupta (William Davidson Institute, University of Michigan Business School)
Rick Harbaugh (Claremont McKenna College)

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Abstract

Should an informed seller of multiple goods sell the best goods first to make a favorable impression on buyers, or instead hold back on the best goods until buyers have learned more from earlier sales? To help answer this question we consider the sequential auction of two goods by a seller with private information about their values. We find that the seller's sequencing strategy endogenously generates correlation in the values of the goods across periods, thereby giving the seller an incentive to impress buyers by leading with the better good. This impression effect implies that selling the better good first is the unique equilibrium in many situations, and that selling the better good last is never a unique equilibrium. Nevertheless, if the seller could commit to a sequencing strategy, revenues would often be higher from waiting to sell the better good last. Either sequencing strategy reveals the seller's ranking of the goods and thereby, due to the linkage principle, generates higher revenues than either randomly selling the goods or selling them simultaneously.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2000-43.

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Date of creation: 2000
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Handle: RePEc:clm:clmeco:2000-43

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Related research
Keywords: sequential auction; impression effect; linkage principle; declining price anomaly;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March. [Downloadable!] (restricted)
  2. Luton, Richard & McAfee, R. Preston, 1986. "Sequential procurement auctions," Journal of Public Economics, Elsevier, vol. 31(2), pages 181-195, November. [Downloadable!] (restricted)
  3. Archishman Chakraborty & Nandini Gupta, 2004. "Ordinal Cheap Talk in Common Value Auctions," Econometric Society 2004 North American Winter Meetings 605, Econometric Society. [Downloadable!]
  4. Claessens, Stijn & Djankov, Simeon, 2002. "Privatization benefits in Eastern Europe," Journal of Public Economics, Elsevier, vol. 83(3), pages 307-324, March. [Downloadable!] (restricted)
  5. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2002. "Seller Cheap Talk in Common Value Auctions," Claremont Colleges Working Papers 2002-30, Claremont Colleges. [Downloadable!]
  6. McMillan, John, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-62, Summer. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June. [Downloadable!] (restricted)
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  9. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June. [Downloadable!] (restricted)
  10. Archishman Chakraborty & Rick Harbaugh, 2003. "Ordinal Cheap Talk," Claremont Colleges Working Papers 2003-05, Claremont Colleges. [Downloadable!]
  11. Audra L. Boone & J. Harold Mulherin, . "Corporate Restructuring and Corporate Auctions," Claremont Colleges Working Papers 2002-38, Claremont Colleges. [Downloadable!]
  12. 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. [Downloadable!]
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  13. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer. [Downloadable!] (restricted)
  14. Alan Beggs & Kathryn Graddy, 1997. "Declining Values and the Afternoon Effect: Evidence from Art Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 544-565, Autumn. [Downloadable!] (restricted)
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  15. Victor A. Ginsburgh, 1998. "Absentee Bidders and the Declining Price Anomaly in Wine Auctions," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1302-1331, December. [Downloadable!] (restricted)
  16. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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  17. Lopez-de-Silanes, Florencio, 1997. "Determinants of Privatization Prices," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 965-1025, November.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carolyn Pitchik, 2008. "Budget-Constrained Sequential Auctions with Incomplete Information," Working Papers tecipa-342, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  2. Archishman Chakraborty & Rick Harbaugh, 2003. "Ordinal Cheap Talk," Claremont Colleges Working Papers 2003-05, Claremont Colleges. [Downloadable!]
  3. 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. [Downloadable!]
  4. 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. [Downloadable!]
    Other versions:
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