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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. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
  2. R. Preston McAfee & Daniel Vincent, 1994. "Sequentially Optimal Auctions," Discussion Papers 1104, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  4. van Damme, E.E.C. & Hurkens, J.P.M., 1994. "Games with imperfectly observable commitment," Discussion Paper 1994-64, Tilburg University, Center for Economic Research.
  5. Rod Garrat & Thomas Tröger, 2005. "Speculation in Standard Auctions with Resale," Bonn Econ Discussion Papers bgse10_2005, University of Bonn, Germany.
  6. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Rod Garratt & Thomas Troger, 2004. "Speculation in Standard Auctions with Resale," Microeconomics 0405005, EconWPA.
  8. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, vol. 98(1), pages 87-112, March.
  9. 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.
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