First Impressions in a Sequential Auction

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.