Costly Signalling in Auctions

Johannes Horner and Nicolas Sahuguet ()

Review of Economic Studies, 2007, vol. 74, issue 1, pages 173-206

Abstract: Another issue related to bidding strategy is whether to be bold or cautious in opening bidding. The man who strongly desires an item will jump in with both feet, as it were, or try to rout the enemy by starting out with a high, possibly loud, bid intended to "knock out" his opponents. Sometimes he even tops his own bid. This approach may discourage competitors at the outset and prevent them from ever getting caught up in the spirit of the bidding. In a very different strategy, a prospective buyer, even though determined to purchase an item, bids tentatively and cautiously in order to feel out the opposition. He hopes that by indicating a low regard for the offering he will lull opponents into a false sense of security. (Ralph Cassady, Jr) Copyright 2007 The Review of Economic Studies Limited.

Date: 2007
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