Verifiable Offers and the Relationship Between Auctions and Multilateral Negotiations

Charles Thomas and Bart Wilson

Economic Journal, 2005, vol. 115, issue 506, 1016-1031

Abstract: We use the experimental method to compare second-price auctions with 'verifiable' multilateral negotiations in which the sole buyer can credibly reveal to sellers the best price offer he currently holds. Despite the two institutions' seeming equivalence, we find that prices are lower in verifiable multilateral negotiations than in second-price auctions. The difference occurs because low-cost sellers in negotiations often submit initial offers below the second-lowest cost. We also compare the two institutions to previously studied first-price auctions and multilateral negotiations with non-verifiable offers. Second-price auctions yield the highest prices, followed in order by verifiable negotiations, non-verifiable negotiations and first-price auctions. Copyright 2005 Royal Economic Society.

Date: 2005
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