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

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  • Février Philippe
  • Roos William
  • Visser Michael

    ()

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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File URL: http://www.inra.fr/Internet/Departements/ESR/UR/lea/documents/wp/wp0409.pdf
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Bibliographic Info

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
Date of revision:
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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Cited by:
  1. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
  2. Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.
  3. Héla Hadj Ali & Sébastien Lecocq & Michael Visser, 2005. "The impact of gurus : Parker grades and en primeur wine prices," Research Unit Working Papers 0507, Laboratoire d'Economie Appliquee, INRA.

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