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First Impressions in a Sequential Auction

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Author Info
Archishman Chakraborty
Nandini Gupta (University of Pittsburgh)
Rick Harbaugh (Claremont McKenna College)

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Abstract

Should an informed seller lead with the best or worst good in a sequential auction? Considering the sale of two stochastically equivalent goods over two periods, we show that if second period buyers can observe the first period price, the seller has an incentive to lead with the best good so as to send a positive signal about the quality of the following good. This result holds even though the goods' values are independent because the seller's sequencing strategy endogenously generates correlation in the quality of the goods across periods. In contrast, a best for last strategy may not be as credible as the seller has an incentive to then sell his better good early. We also show that ex-ante expected profits from either of these strategies is higher than a babbling strategy of randomly sequencing the sale, even when the second period buyers do not observe the first period price.We discuss implications for the choice of sequential versus simultaneous auctions, the strategic choice of auction houses, the sequential auction of items of varying expected quality, the declining price anomaly observed in auction data, and the effects of selection bias on empirical studies of privatization auctions.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1705.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1705

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  1. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-05, May. [Downloadable!] (restricted)
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  2. Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(4), pages 607-28, Winter.
  3. Milgrom, Paul & Weber, Robert J., 1982. "The value of information in a sealed-bid auction," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 105-114, June. [Downloadable!] (restricted)
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  4. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  5. Avery, Christopher, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 185-210, April. [Downloadable!] (restricted)
  6. 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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  7. Maria Angeles de Frutos & Robert W. Rosenthal, 1997. "On Some Myths about Sequenced Common-value Auctions," Papers 0077, Boston University - Industry Studies Programme.
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  8. von der Fehr, Nils-Henrik Morch, 1994. "Predatory Bidding in Sequential Auctions," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 345-56, July. [Downloadable!] (restricted)
  9. 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)
  10. Lusht, Kenneth M, 1994. "Order and Price in a Sequential Auction," The Journal of Real Estate Finance and Economics, Springer, vol. 8(3), pages 259-66, May.
  11. 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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  12. Vanderporten, Bruce, 1992. "Strategic behavior in pooled condominium auctions," Journal of Urban Economics, Elsevier, vol. 31(1), pages 123-137, January. [Downloadable!] (restricted)
  13. Beggs, A. & Graddy, K., 1996. "Declining Values and the Afternoon Effect: Evidence from Art Auctions," Economics Series Working Papers 99184, University of Oxford, Department of Economics.
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