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The buyer's option in multi-unit ascending auctions : the case of wine auctions at Drouot

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Author Info
Février Philippe
Roos William
Visser Michael ()

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Abstract

This paper studies multi-unit ascending (English) auctions with a buyer’s option. The buyer’s option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines...) that are tested using a unique data set on wine auctions held at the Paris-based auction house Drouot. We also analyze why the buyer’s option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer’s option does not affect the seller’s revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time saving effect seems thus to be the primary purpose of the buyer’s option.

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Paper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0409.

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Length: 39 pages
Date of creation: Jun 2004
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Handle: RePEc:lea:leawpi:0409

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Related research
Keywords: buyer's option; multi-unit ascending auctions; wine auctions;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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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. Roberto Burguet, . "Right To Choose In Oral Auctions," UFAE and IAE Working Papers 439.99, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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  2. 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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  3. 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.
  4. Gerard J. van den Berg & Jan C. van Ours & Menno P. Pradhan, 2001. "The Declining Price Anomaly in Dutch Dutch Rose Auctions," American Economic Review, American Economic Association, vol. 91(4), pages 1055-1062, September. [Downloadable!] (restricted)
  5. Février Philippe & Linnemer Laurent & Visser Michael, 2004. "Buy or wait, that is the option : the buyer's option in sequential laboratory auctions," Research Unit Working Papers 0410, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
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  6. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, vol. 78(2), pages 333-357, June. [Downloadable!] (restricted)
  7. 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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  8. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June. [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. Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November. [Downloadable!] (restricted)
  11. 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)
  12. 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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  13. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-48, February. [Downloadable!] (restricted)
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  1. Février Philippe & Linnemer Laurent & Visser Michael, 2004. "Buy or wait, that is the option : the buyer's option in sequential laboratory auctions," Research Unit Working Papers 0410, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
    Other versions:
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