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Advantage for Sale: Endogenous Asymmetry in Sequential Auctions

Author

Listed:
  • Maurício Bugarin

  • Odilon Câmara

  • Wilfredo Leiva Maldonado

Abstract

In some real-world markets where buyers compete to trade with a seller, the winner of the good or service today also gains a contractual advantage in future competitions. We study advantage-for-sale (AFS) mechanisms, where the seller deliberately grants this advantage. We characterize the optimal AFS mechanism and show it strictly benefits the seller when she has limited ability to contract on past outcomes. The seller grants a larger advantage when bidders are fewer or more patient. This advantage — a lower reserve price and a discount on rival bids—intensifies competition for the winner’s status and increases revenue.

Suggested Citation

  • Maurício Bugarin & Odilon Câmara & Wilfredo Leiva Maldonado, 2025. "Advantage for Sale: Endogenous Asymmetry in Sequential Auctions," Working Papers, Department of Economics 2025_12, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2025wpecon12
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    File URL: http://www.repec.eae.fea.usp.br/documentos/Bugarin_Camara_Maldonado_12WP.pdf
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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