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Auction Beats Posted Prices in a Small Market

Author

Listed:
  • Julien, Benoit
  • Kennes, John
  • King, Ian

Abstract

In a model with two buyers and sellers we consider the choice of sales mechanism from three possibilities: posted prices, and auctions with and without reserve prices. With homogenous goods, sellers expected revenues are highest when both sellers auction with reserve prices 33% higher than if posting prices and 100% higher than if auctioning without reserve prices. When sellers can choose their mechanism before choosing prices, both sellers auction with a reserve price in the dominant strategy equilibrium. With heterogenous goods, the equilibrium with posted prices is inefficient (Montgomery (1991)) but the equilibria with both types of auctions are efficient.

Suggested Citation

  • Julien, Benoit & Kennes, John & King, Ian, 2002. "Auction Beats Posted Prices in a Small Market," Working Papers 154, Department of Economics, The University of Auckland.
    • Handle: RePEc:auc:wpaper:154
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    Cited by:

    1. Kircher, Philipp & Kim, Kyungmin, 2013. "Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price," SIRE Discussion Papers 2013-107, Scottish Institute for Research in Economics (SIRE).
    2. John Kennes, 2006. "Competitive Auctions: Theory and Application," Contributions to Economic Analysis, in: Structural Models of Wage and Employment Dynamics, pages 145-168, Emerald Group Publishing Limited.
    3. Christopher Boyer & B. Brorsen & Tong Zhang, 2014. "Common-value auction versus posted-price selling: an agent-based model approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(1), pages 129-149, April.
    4. Melvyn G. Coles & Jan Eeckhout, 2000. "Heterogeneity as a coordination device," Economics Working Papers 510, Department of Economics and Business, Universitat Pompeu Fabra.
    5. John Kennes & Aaron Schiff, 2003. "The Value of a Reputation System," Industrial Organization 0301011, University Library of Munich, Germany.
    6. Julien, Benoit & Kennes, John & King, Ian, 2006. "The Mortensen rule and efficient coordination unemployment," Economics Letters, Elsevier, vol. 90(2), pages 149-155, February.
    7. Hummel, Patrick, 2015. "Simultaneous use of auctions and posted prices," European Economic Review, Elsevier, vol. 78(C), pages 269-284.
    8. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.
    9. Kircher, Philipp & Kim, Kyungmin, 2013. "Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price Commitment," CEPR Discussion Papers 9785, C.E.P.R. Discussion Papers.
    10. Julien, Benoit & Kennes, John & King, Ian Paul, 2011. "Implementing the Mortensen rule in a frictional labor market," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 80-91, March.
    11. Halko, Marja-Liisa & Kultti, Klaus & Niinimaki, Juha-Pekka, 2007. "Evolutionary stability of trading rules in an urn-ball matching model," Research in Economics, Elsevier, vol. 61(1), pages 11-15, March.
    12. Han Han Peking & Benoit Julien & Liang Wang, 2021. "On the Robustness of Pricing Mechanisms," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    13. Benoît Julien & John Kennes & Ian King, 2005. "Ex post bidding and efficient coordination unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 174-193, February.
    14. Patrick Hummel, 2018. "How do selling mechanisms affect profits, surplus, capacity and prices with unknown demand?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(1), pages 94-126, February.
    15. Nejat Anbarci & Pedro Gomis-Porqueras & Marcus Pivato, 2018. "Evolutionary stability of bargaining and price posting: implications for formal and informal activities," Journal of Evolutionary Economics, Springer, vol. 28(2), pages 365-397, April.

    More about this item

    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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