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Buy or wait, that is the option : the buyer's option in sequential laboratory auctions

Author

Listed:
  • Février Philippe
  • Linnemer Laurent
  • Visser Michael

    ()

Abstract

This paper reports the results from an experiment on two-unit sequential auctions with and without a buyer’s option (which gives the winner of the first auction the right to buy the second unit at the winning price). The demand for the two items is either decreasing, flat, or increasing. The 4 main auction institutions (first-price, Dutch, second-price, English) are studied. We find that observed bidding behavior is close to Nash equilibrium bidding in the auctions for the second unit, but there are substantial deviations in the auctions for the first unit. Despite these deviations, the buyer’s option is correctly used in most cases. The revenue-ranking of the 4 auction institutions is the same as in single-unit experiments. Finally, successive prices are declining when the buyer’s option is available. The last 2 results are used to compare real-life auctions and to discuss the findings in related field-data studies.

Suggested Citation

  • Février Philippe & Linnemer Laurent & Visser Michael, 2004. "Buy or wait, that is the option : the buyer's option in sequential laboratory auctions," Research Unit Working Papers 0410, Laboratoire d'Economie Appliquee, INRA.
  • Handle: RePEc:lea:leawpi:0410
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    References listed on IDEAS

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    1. Paul Brenton & Miriam Manchin, 2003. "Making EU Trade Agreements Work: The Role of Rules of Origin," The World Economy, Wiley Blackwell, vol. 26(5), pages 755-769, May.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Rod Falvey & Geoff Reed, 1998. "Economic effects of rules of origin," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 209-229, June.
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    Cited by:

    1. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 461-490, July.
    2. Rosato, Antonio, 2014. "Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect"," MPRA Paper 56824, University Library of Munich, Germany.
    3. Dejan Trifunovic, 2014. "Sequential Auctions And Price Anomalies," Economic Annals, Faculty of Economics, University of Belgrade, vol. 59(200), pages 7-42, January –.

    More about this item

    Keywords

    experimental economics; sequential auctions; buyer's option;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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