Common Value Auctions with Return Policies
AbstractThis paper examines the role of return policies in common value auctions. We first characterize the unique symmetric equilibrium in first-price and second-price auctions with continuous signals and discrete common values when certain return policies are provided. We then examine how the return policies affect a seller's revenue. When the lowest common value is zero, a more generous return policy generates a higher seller's revenue; the full refund policy extracts all the surplus and therefore implements the optimal selling mechanism; given any return policy, a second-price auction generates a higher revenue than a first-price auction. In a second-price auction where the lowest common value is not zero but still smaller than the seller's reservation value, then a more generous return policy also generates a higher revenue; otherwise, the optimal return policy could be a full refund, no refund or partial refund policy.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1235.
Length: 38 pages
Date of creation: Apr 2010
Date of revision:
auctions; return policies; refund;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
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