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First Impressions in a Sequential Auction

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  • Archishman Chakraborty
  • Nandini Gupta

    (University of Pittsburgh)

  • Rick Harbaugh

    (Claremont McKenna College)

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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Bibliographic Info

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, O. & Genesove, D., 1992. "Testing for Price Anomalies in Real Estate Auctions," Working papers 92-2, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. 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.
  3. 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.
  4. Maria Angeles de Frutos & Robert W. Rosenthal, 1997. "On Some Myths about Sequenced Common-value Auctions," Papers 0077, Boston University - Industry Studies Programme.
  5. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
  6. Bernhardt, Dan & Scoones, David, 1993. "A Note on Sequential Auctions," Working Papers 829, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Vanderporten, Bruce, 1992. "Strategic behavior in pooled condominium auctions," Journal of Urban Economics, Elsevier, vol. 31(1), pages 123-137, January.
  8. Paul Milgrom & Robert J. Weber, 1981. "The Value of Information in a Sealed-Bid Auction," Discussion Papers 462, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  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.
  10. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Avery, Christopher, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 185-210, April.
  12. 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.
  13. repec:att:wimass:9215 is not listed on IDEAS
  14. Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-28, Winter.
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