The Buyer's Option in Multi‐Unit Ascending Auctions: The Case of Wine Auctions at Drouot

Philippe Février (), William Roos and Michael Visser

Journal of Economics & Management Strategy, 2005, vol. 14, issue 4, 813-847

Abstract: This paper studies multi‐unit ascending (English) auctions with a buyer's option. The buyer's option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines…) that are tested using a unique data set on wine auctions held at the Paris‐based auction house Drouot. We also analyze why the buyer's option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer's option does not affect the seller's revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time‐saving effect seems thus to be the primary purpose of the buyer's option.

Date: 2005
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https://doi.org/10.1111/j.1530-9134.2005.00084.x

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Working Paper: The buyer's option in multi-unit ascending auctions: the case of wine auctions at Drouot (2004)
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