Systematic Price Differences between Successive Auctions Are No Anomaly

Jane Black and David de Meza

Journal of Economics & Management Strategy, 1992, vol. 1, issue 4, 607-28

Abstract: Identical cases of wine are often auctioned one immediately after another. Ashenfelter (1989) reprots that on average, the later lots fetch less. Such a systematic price difference seems anomalous, the more so because it is shown here that rational expectations imp,y not equal, but rising, prices. Risk aversion is an obvious way of reconciling the evidence with rational behavior. There is an alternative explanation. The auctions observed by Ashenfelter involved a buyer's option, whereby the first-round winner could purchase further cases at the same price. It is shown that this feature may both account for the observed price trajectory and raise seller revenue. Copyright 1992 by MIT Press.

Date: 1992
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