Auctions with imperfect commitment when the reserve may signal the cost to re-auction

Byoung Heon Jun, Elmar G. Wolfstetter

Research output: Contribution to journalArticlepeer-review

Abstract

If bidders are uncertain whether the auctioneer sticks to the announced reserve, they respond with strategic non-participation, speculating that the auctioneer may revoke the reserve. However, the reserve inadvertently signals the auctioneer's type, which drives multiplicity of equilibria. Eliminating belief systems that violate the "intuitive criterion" yields a unique equilibrium reserve price equal to the seller's consumption value. Paradoxically, even if bidders initially believe that the auctioneer is bound by his reserve almost with certainty, commitment has no value. Commitment is a shorthand for a high cost to re-auction, which may reflect a concern for reputation. Several variations of the model assess the robustness of our results.

Original languageEnglish
Pages (from-to)11-21
Number of pages11
JournalInternational Journal of Industrial Organization
Volume40
DOIs
Publication statusPublished - 2015 May

Bibliographical note

Funding Information:
We would like to thank Cuihong Fan and two anonymous referees for their constructive comments and suggestions. Research support by the BK21plus program of the Economics Department at Korea University , funded by the Korean Government , and the Deutsche Forschungsgemeinschaft (DFG) , SFB Transregio 15 , “Governance and Efficiency of Economic Systems” is gratefully acknowledged.

Funding Information:
A case in point is the annual Christmas Art Auction of the Berlin Senate. There, the city government auctions the work of artists who were supported by a fellowship. In these auctions, the auctioneer occasionally initiated the breach of his rules with the words “Just once, I revoke the reserve.”.

Keywords

  • Auctions
  • Imperfect commitment
  • Signaling

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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