Price formation in a sequential selling mechanism
This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a secondâ€“price sealedâ€“bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyersâ€™ behavior, but is not sufficient to explain sellersâ€™ decisions. We discuss other behavioral explanations that could account for the observed deviations.
|Date of creation:||Oct 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hidvegi, Zoltan & Wang, Wenli & Whinston, Andrew B., 2006. "Buy-price English auction," Journal of Economic Theory, Elsevier, vol. 129(1), pages 31-56, July.
- Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001.
"Bidding behavior in asymmetric auctions: An experimental study,"
SFB 373 Discussion Papers
2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Guth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2005. "Bidding behavior in asymmetric auctions: An experimental study," European Economic Review, Elsevier, vol. 49(7), pages 1891-1913, October.
- Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September.
- Pezanis-Christou, P, 1997.
"On the Impact of Low-Balling : Experimental Results in Asymmetric Auctions,"
97/05, New South Wales - School of Economics.
- Paul Pezanis-Christou, 2002. "On the impact of low-balling: Experimental results in asymmetric auctions," International Journal of Game Theory, Springer, vol. 31(1), pages 69-89.
- Chen, Kay-Yut & Plott, Charles R., .
"Nonlinear Behavior in Sealed Bid First Price Auctions,"
774, California Institute of Technology, Division of the Humanities and Social Sciences.
- Chen, Kay-Yut & Plott, Charles R., 1998. "Nonlinear Behavior in Sealed Bid First Price Auctions," Games and Economic Behavior, Elsevier, vol. 25(1), pages 34-78, October.
- Steven Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004.
"Seller Strategies on eBay,"
- Anderson, Steve & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2004. "Seller Strategies on eBay," Santa Cruz Department of Economics, Working Paper Series qt43z3965f, Department of Economics, UC Santa Cruz.
- René Kirkegaard, 2006. "A short proof of the Bulow-Klemperer auctions vs. negotiations result," Economic Theory, Springer, vol. 28(2), pages 449-452, 06.
- Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, vol. 45(1), pages 97-113, October.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
- Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2004.
"Bidder Preferences among Auction Institutions,"
Western Economic Association International, vol. 42(2), pages 223-236, April.
- Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2004. "Bidder Preferences Among Auction Institutions," Experimental 0404005, EconWPA.
- Ivanova-Stenzel, Radosveta & Salmon, Tim, 2002. "Bidder preferences among auction institutions," SFB 373 Discussion Papers 2002,86, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, vol. 81(1), pages 25-52, 01.
- Kagel, J.H. & Levin, D., 1988.
"Independent Private Value Auctions: Bidder Behavior In First, Second And Third-Price Auctions With Varying Numbers Of Bidders,"
13, Houston - Department of Economics.
- Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, vol. 103(419), pages 868-79, July.
- Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000.
"Quantal Response Equilibrium and Overbidding in Private-Value Auctions,"
Virginia Economics Online Papers
345, University of Virginia, Department of Economics.
- Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
- Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000. "Quantal Response Equilibrium and Overbidding in Private-value Auctions," Working Papers 1073, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
- John Wooders & Stanley S. Reynolds, 2004.
"Auctions with a Buy Price,"
Econometric Society 2004 North American Summer Meetings
130, Econometric Society.
- Timothy Mathews & Brett Katzman, 2006. "The role of varying risk attitudes in an auction with a buyout option," Economic Theory, Springer, vol. 27(3), pages 597-613, 04.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:92. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.