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Common Value Auctions With Return Policies

Author

Listed:
  • Ruqu Wang
  • Jun Zhang

    (Queen's University)

Abstract

This paper examines the role of return policies in common value auctions. We firstcharacterize the unique symmetric equilibrium in first-price and second-price auctionswith continuous signals and discrete common values when certain return policies areprovided. We then examine how the return policies affect a sellerÂ’s revenue. When thelowest common value is zero, a more generous return policy generates a higher sellerÂ’srevenue; the full refund policy extracts all the surplus and therefore implements theoptimal selling mechanism; given any return policy, a second-price auction generates ahigher revenue than a first-price auction. In a second-price auction where the lowestcommon value is not zero but still smaller than the sellerÂ’s reservation value, then amore generous return policy also generates a higher revenue; otherwise, the optimalreturn policy could be a full refund, no refund or partial refund policy.

Suggested Citation

  • Ruqu Wang & Jun Zhang, 2010. "Common Value Auctions With Return Policies," Working Paper 1235, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1235
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1235.pdf
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Jun, 2013. "Revenue maximizing with return policy when buyers have uncertain valuations," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 452-461.

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    More about this item

    Keywords

    return policies; auctions; refund;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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