Mezzetti, Claudio. (2011) Sequential auctions with informational externalities and aversion to price risk : decreasing and increasing price sequences. Economic Journal, Vol.121 (No.555). pp. 990-1016. ISSN 0013-0133

PDF WRAP_Mezzetti_241011-riskav-dec10.pdf - Accepted Version Restricted to Repository staff only until 2 June 2012. - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (296Kb)

Abstract

A large body of empirical research has shown that prices of identical goods sold sequentially sometimes increase and often decline across rounds. This article introduces a tractable form of risk aversion, called aversion to price risk, and shows that declining prices arise naturally when bidders are averse to price risk. When there are informational externalities, there is a countervailing effect which pushes prices to raise along the path of a sequential auction, even if bidder's signals are independent. The article shows how to decompose the effect of aversion to price risk from the effect of informational externalities.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Pricing, Auctions -- Economic aspects
Journal or Publication Title:	Economic Journal
Publisher:	Blackwell
ISSN:	0013-0133
Date:	September 2011
Volume:	Vol.121
Number:	No.555
Page Range:	pp. 990-1016
Identification Number:	10.1111/j.1468-0297.2011.02438.x
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
References:	[1] Ashenfelter, O. (1989). 'How auctions works for wine and art', Journal of Economic Perspectives, vol. 3, pp. 23-36. [2] Ashenfelter, O. and Genesove, D. (1992). 'Testing for price anomalies in real-estate auctions', American Economic Review, vol. 82, pp. 501-505. [3] Ashenfelter, O. and Graddy, K. (2003). 'Auctions and the price of art', Journal of Economic Literature, vol. 41, pp. 763-786. [4] Beggs, A. Graddy, K. (1997). 'Declining values and the afternoon effect: evidence from art auctions', RAND Journal of Economics, vol. 28, pp. 544-565. [5] van den Berg, G., van Ours, J. and Pradhan, M. (2001). 'The declining price anomaly in Dutch rose auctions', American Economic Review, vol. 91, pp. 1055-1062. [6] Bernhardt, D. and Scoones, D. (1994). 'A note on sequential auctions', American Economic Review, vol. 84, pp. 653-657. [7] Black, J. and de Meza, D. (1992). 'Systematic price differences between successive auctions are no anomaly', Journal of Economics and Management Strategy, vol. 1, pp. 607-628. [8] Buccola, S. (1982). 'Price trends at livestock auctions', American Journal of Agricultural Economics, vol. 64, pp. 63-69. [9] Burns, P. (1985). 'Experience and decision making: a comparison of students and businessmen in a simulated progressive auction', in (V. Smith, ed.), Research in Experimental Economics: A Research Annual, vol. 3, Greenwich, Connecticut: JAI. [10] Chanel, O., Gérard-Varet, L.A. and Vincent, S. (1996). 'Auction theory and practice: evidence from the market for jewellery', in (V. Ginsburgh and P.M. Menger, eds), Economics of the Arts: Selected Essays, Amsterdam: Elsevier. [11] Che, Y.K. and Gale, I. (1998). 'Standard auctions with financially constrained bidders', Review of Economic Studies, vol. 65, pp. 1-21. [12] Dasgupta, P. and Maskin, E. (2000). 'Efficient auctions', Quarterly Journal of Economics, vol. 95, pp. 341-388. [13] Deltas, G. and Kosmopolou, G. (2004). 'Bidding in sequential auctions: 'catalogue'vs. 'order-of-sale' effects', Economic Journal, vol. 114, pp. 28-54. [14] Engelbrecht-Wiggans, R. (1994). 'Sequential auctions of stochastically equivalent objects', Economics Letters, vol. 44, pp. 87-90. [15] Feng, J., and Chatterjee., K. (2005). 'Simultaneous vs. sequential auctions: intensity of competition and uncertainty'Working Paper, Penn State University. [16] Harstad, R.M., and Rothkopf, M.H. (2000). 'An alternating recognition model of English auctions', Management Science, vol. 46, pp. 1-18. [17] Hörner, J., and Jamison, J. (2008). 'Sequential common-value auctions with asymmetrically informed bidders', Review of Economic Studies, vol. 75, pp. 475-498. [18] Gale, I. and Hausch, D. (1994). 'Bottom-fishing and declining prices in sequential auctions', Games and Economic Behavior, vol. 7, pp. 318-331. [19] Gale, I. and Stegeman, M. (2001). 'Sequential auctions of endogenously valued objects', Games and Economic Behavior, vol. 36, pp. 74-103. [20] Gandal, N. (1997). 'Sequential auctions of interdependent objects: Israeli cable television licenses', Journal of Industrial Economics, vol. 45, pp. 227-244. [21] Ginsburgh, V. (1998). 'Absentee bidders and the declining price anomaly in wine auctions', Journal of Political Economy, vol. 106, pp. 1302-1319. [22] Ginsburgh, V. and van Ours, J. (2007). 'How to organize a sequential auction. Results of a natural experiment by Christie's', Oxford Economic Papers, vol. 59, pp. 1-15. [23] Jeitschko, T. (1999). 'Equilibrium price paths in sequential auctions with stochastic supply', Economics Letters, vol. 64, pp. 67-72. [24] Jeitschko, T. and Wolfstetter. E. (1998). 'Scale economies and the dynamics of recurring auctions', Economic Inquiry, vol. 40, pp. 403-414. [25] Jones, C., Menezes, F. and Vella, F. (2004). 'Auction price anomalies: evidence from wool auctions in Australia', Economic Record, vol. 80, pp. 271-288. [26] Katzman, B. (1999). 'A two stage sequential auction with multi-unit demands', Journal of Economic Theory, vol. 86, pp. 77-99. [27] Keser, C. and Olson, M. (1996). 'Experimental examination of the declining price anomaly', in (V. Ginsburgh and P.M. Menger, eds.), Economics of the Arts: Selected Essays, Amsterdam: Elsevier. [28] Ljungqvist, L. and Sargent. T. (2000). Recursive Macroeconomic Theory, Cambridge, Massachusetts: MIT Press. [29] Lusht, K. (1994). 'Order and price in a sequential auction', Journal of Real Estate Finance and Economics, vol. 8, pp. 259-266. [30] Maskin, E. and Riley, J. (1984). 'Optimal auctions with risk averse buyers', Econometrica, vol. 52, pp. 1473-1518. [31] Matthews, S. (1983). 'Selling to risk averse buyers with unobservable tastes', Journal of Economic Theory, vol. 30, pp. 370-400. [32] McAfee, P. and Vincent, D. (1993). 'The declining price anomaly', Journal of Economic Theory, vol. 60, pp. 191-212. [33] Mezzetti, C., Pekeµc, A. and Tsetlin, I. (2008). 'Sequential vs. single-round uniform-price auctions', Games and Economic Behavior, vol. 62, pp. 591-609. [34] Milgrom, P. (2004). Putting Auction Theory to Work, Cambridge, UK: Cambridge University Press. [35] Milgrom, P. and Weber, R. (1982). 'A theory of auctions and competitive bidding, II', Working Paper, Stanford University and Northwestern University. Published with new foreword in (P. Klemperer, ed.) (2000). The Economic Theory of Auctions, Vol. 1, Cheltenham, UK: Edward Edgar. [36] Pesando J. and Shum, P. (1996). 'Price anomalies at auctions: evidence from the market for modern prints', in (V. Ginsburgh and P.M. Menger, eds.), Economics of the Arts: Selected Essays, Amsterdam: Elsevier. [37] Thiel, S. and Petry, G. (1995). 'Bidding behaviour in second-price auctions: rare stamp sales, 1923- 1937', Applied Economics, vol. 27(1), pp. 11-16. [38] Virág, G. (2007). 'Repeated common value auctions with asymmetric bidders', Games and Economic Behavior, vol. 61, pp. 156-177. [39] Weber, R. (1983). 'Multi-object auctions', in (R. Engelbrecht-Wiggans, M. Shubik and R.M. Stark, eds.), Auctions, Bidding and Contracting: Uses and Theory, New York University Press, New York, pp. 165-94.
URI:	http://wrap.warwick.ac.uk/id/eprint/38132

Data sourced from Thomson Reuters' Web of Knowledge

Request changes to a record

Actions (login required)

View Item