Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions
AbstractWe consider “must-sell” auctions with asymmetric buyers. First, we study auctions with two asymmetric buyers, where the distribution of valuations of the strong buyer is “stretched” relative to that of the weak buyer. Then, it is known that inefficient first-price auctions are more profitable for the seller than efficient second-price auctions. This is because the former favor the weak buyer. However, we show that the seller can do one better by augmenting the first-price auction by a pre-auction offer made exclusively to the strong buyer. Should the strong buyer reject the offer, the object is simply sold in an ordinary first-price auction. The result is driven by the fact that the unmodified first-price auction is too favorable to the weak buyer, and that the pre-auction offer allows some correction of this to the benefit of the seller. Secondly, we show quite generally that pre-auction offers never increase the profitability of second-price auctions, since they introduce the wrong kind of favoritism from the perspective of seller profits.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2005-04.
Length: 13 pages
Date of creation: Oct 2005
Date of revision:
Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (0045) 35 32 30 54
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/cie/
More information through EDIRC
first-price and second-price auctions; asymmetric bidders; pre-auction offers;
Other versions of this item:
- Kirkegaard, René & Overgaard, Per Baltzer, 2008. "Pre-auction offers in asymmetric first-price and second-price auctions," Games and Economic Behavior, Elsevier, vol. 63(1), pages 145-165, May.
- Kirkegaard, René & Per Baltzer Overgaard, 2005. "Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions," Economics Working Papers 2005-17, School of Economics and Management, University of Aarhus.
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
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.:
- Giuseppe Lopomo, 2004.
"The English Auction Is Optimal Among Simple Sequential Auctions,"
122247000000000369, UCLA Department of Economics.
- Lopomo, Giuseppe, 1998. "The English Auction Is Optimal Among Simple Sequential Auctions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 144-166, September.
- Lebrun, Bernard, 1999. "First Price Auctions in the Asymmetric N Bidder Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 125-42, February.
- Kirkegaard, René, 2009. "Asymmetric first price auctions," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1617-1635, July.
- Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2005.
"Price formation in a sequential selling mechanism,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
92, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Plum, M, 1992. "Characterization and Computation of Nash-Equilibria for Auctions with Incomplete Information," International Journal of Game Theory, Springer, vol. 20(4), pages 393-418.
- René Kirkegaard & Per Baltzer Overgaard, 2008. "Buy-out prices in auctions: seller competition and multi-unit demands," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 770-789.
- Hidvegi, Zoltan & Wang, Wenli & Whinston, Andrew B., 2006. "Buy-price English auction," Journal of Economic Theory, Elsevier, vol. 129(1), pages 31-56, July.
- Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
- repec:wop:humbsf:2000-72 is not listed on IDEAS
- Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September.
- Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January.
- Timothy Mathews, 2003. "A Risk Averse Seller in a Continuous Time Auction with a Buyout Option," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 5(2), January.
- Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
- Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, vol. 81(1), pages 25-52, 01.
- Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
- René Kirkegaard, 2006. "A short proof of the Bulow-Klemperer auctions vs. negotiations result," Economic Theory, Springer, vol. 28(2), pages 449-452, 06.
- René Kirkegaard, 2007. "Comparative Statics and Welfare in Heterogeneous Contests: Bribes, Caps, and Performance Thresholds," Working Papers 0702, Brock University, Department of Economics.
- Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Fischer).
If references are entirely missing, you can add them using this form.