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Sequential Auctions with Decreasing Reserve Prices

Author

Listed:
  • Landi Massimiliano

    (School of Economics, Singapore Management University, 90 StamfordRoad, 178903Singapore)

  • Menicucci Domenico

    (Dipartimento di Scienze per l’Economia e l’Impresa, Università degli Studi di Firenze, Via delle Pandette 9, I-50127Firenze, Italia)

Abstract

We study sequential sealed bid auctions with decreasing reserve prices when there are two identical objects for sale and unit-demand bidders (existing literature has dealt with the case of weakly increasing reserve prices). Under decreasing reserve prices bidders may have an incentive not to bid in the first auction, and no equilibrium exists with a strictly increasing stage one bidding function. However, we find that an equilibrium always exists, and its shape depends on the distance between the two reserve prices. The equilibrium exhibits some pooling at the stage one auction, which disappears in the limit as the number of bidders tends to infinity. We also show revenue equivalence between first-price and second-price sequential auctions under decreasing reserve prices. Finally, our results allow us to shed some light on an optimal order problem (increasing versus decreasing exogenous reserve prices) for selling the two objects.

Suggested Citation

  • Landi Massimiliano & Menicucci Domenico, 2019. "Sequential Auctions with Decreasing Reserve Prices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-25, January.
    • Handle: RePEc:bpj:bejtec:v:19:y:2019:i:1:p:25:n:18
    DOI: 10.1515/bejte-2017-0125
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    References listed on IDEAS

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    1. Wedad Elmaghraby, 2003. "The Importance of Ordering in Sequential Auctions," Management Science, INFORMS, vol. 49(5), pages 673-682, May.
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    More about this item

    Keywords

    sequential auctions; first-price auction; second-price auction; revenue equivalence;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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