The buyer's option in multi-unit ascending auctions : the case of wine auctions at Drouot
AbstractThis 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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Bibliographic InfoPaper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0409.
Length: 39 pages
Date of creation: Jun 2004
Date of revision:
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buyer's option; multi-unit ascending auctions; wine auctions;
Other versions of this item:
- Philippe Février & William Roos & Michael Visser, 2005. "The Buyer's Option in Multi-Unit Ascending Auctions: The Case of Wine Auctions at Drouot," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 813-847, December.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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- Todd R. Kaplan & Shmuel Zamir, 2014.
"Advances in Auctions,"
Discussion Paper Series
dp662, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Héla Hadj Ali & Sébastien Lecocq & Michael Visser, 2005.
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Research Unit Working Papers
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- HélaHadj Ali & Sébastien Lecocq & Michael Visser, 2008. "The Impact of Gurus: Parker Grades and "En Primeur" Wine Prices," Economic Journal, Royal Economic Society, vol. 118(529), pages F158-F173, 06.
- Hadj Ali H. & Lecocq S. & Visser M., 2007. "The impact of gurus: Parker grades and en primeur wine prices¤," Working Papers ERMES 0718, ERMES, University Paris 2.
- Ali, Hela Hadj & Lecocq, Sebastien & Visser, Michael, 2007. "The Impact of Gurus: Parker Grades and EN PRIMEUR Wine Prices," Working Papers 37292, American Association of Wine Economists.
- Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.
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