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Systematic Price Differences between Successive Auctions Are No Anomaly

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  • Black, Jane
  • De Meza, David

Abstract

Identical cases of wine are often auctioned one immediately after another. Ashenfelter (1989) reprots that on average, the later lots fetch less. Such a systematic price difference seems anomalous, the more so because it is shown here that rational expectations imp,y not equal, but rising, prices. Risk aversion is an obvious way of reconciling the evidence with rational behavior. There is an alternative explanation. The auctions observed by Ashenfelter involved a buyer's option, whereby the first-round winner could purchase further cases at the same price. It is shown that this feature may both account for the observed price trajectory and raise seller revenue. Copyright 1992 by MIT Press.

Suggested Citation

  • Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-628, Winter.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:607-28
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    References listed on IDEAS

    as
    1. Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
    2. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    3. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    4. R. Preston McAfee & Daniel Vincent, 1991. "The Afternoon Effect," Discussion Papers 961, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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