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Selling goods of unknown quality: forward versus spot auctions

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  • Isa Hafalir
  • Hadi Yektaş

Abstract

We consider an environment where the sale can take place so early that both the seller and the potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to put the good for sale before or after this uncertainty is resolved, , namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting revenues. We also consider the revenue implications of the insurance in forward auctions.
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  • Isa Hafalir & Hadi Yektaş, 2011. "Selling goods of unknown quality: forward versus spot auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 245-256, September.
    • Handle: RePEc:spr:reecde:v:15:y:2011:i:3:p:245-256
    DOI: 10.1007/s10058-011-0110-6
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    Cited by:

    1. Cadsby, C. Bram & Du, Ninghua & Wang, Ruqu & Zhang, Jun, 2016. "Goodwill Can Hurt: A theoretical and experimental investigation of return policies in auctions," Games and Economic Behavior, Elsevier, vol. 99(C), pages 224-238.
    2. Shi, Song & Zhang, Hong & Zhang, Jun, 2022. "The impact of a home purchase restrictions (HPR) policy on the distressed property market in Beijing," Journal of Housing Economics, Elsevier, vol. 58(PB).

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    More about this item

    Keywords

    Forward trading; Forward auctions; Spot auctions; Insurance; D44;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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