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Systematic Price Differences Between Successive Auctionsare no Anomaly

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  • Jane Black
  • David de Meza

Abstract

Identical cases of wine are often auctioned one immediately after another. Ashenfelter (1989) reports 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 imply 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.

Suggested Citation

  • Jane Black & David de Meza, 1992. "Systematic Price Differences Between Successive Auctionsare no Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-628, December.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:607-628
    DOI: 10.1111/j.1430-9134.1992.00607.x
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    1. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    2. Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
    3. R. Preston McAfee & Daniel Vincent, 1991. "The Afternoon Effect," Discussion Papers 961, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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