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Auctions with imperfect commitment when the reserve may serve as a signal

  • Byoung Heon Jun

    ()

    (Department of Economics, Korea University, Seoul, Republic of Korea)

  • Elmar G. Wolfstetter

    ()

    (Institute of Economic Theory I, Humboldt University at Berlin, Spandauer Str. 1, 10178 Berlin, Germany)

If bidders are uncertain whether the auctioneer sticks to the announced reserve, some bidders respond by strategic non-participation, speculating that the auctioneer may revoke the reserve. However, the reserve inadvertently signals the auctioneer¡¯s type, which drives a unique separating and a multitude of pooling equilibria. If one eliminates belief systems that violate the¡°intuitive criterion¡±, one obtains a unique equilibrium reserve price equal to the seller¡¯s own valuation. Paradoxically, even if bidders initially believe that the auctioneer is bound by his reserve almost with certainty, commitment has no value.

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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1304.

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Date of creation: 2013
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Handle: RePEc:iek:wpaper:1304
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  1. McAfee, R. Preston & Vincent, Daniel, 1997. "Sequentially Optimal Auctions," Games and Economic Behavior, Elsevier, vol. 18(2), pages 246-276, February.
  2. Garratt, Rod & Tröger, Thomas, 2005. "Speculation in Standard Auctions with Resale," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 42, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  4. van Damme, Eric & Hurkens, Sjaak, 1997. "Games with Imperfectly Observable Commitment," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 282-308, October.
  5. Haile, Philip A., 2000. "Partial Pooling at the Reserve Price in Auctions with Resale Opportunities," Games and Economic Behavior, Elsevier, vol. 33(2), pages 231-248, November.
  6. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, vol. 98(1), pages 87-112, March.
  7. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
  9. repec:ner:tilbur:urn:nbn:nl:ui:12-74216 is not listed on IDEAS
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