Auctions with imperfect commitment when the reserve may signal the cost to re-auction

Byoung Heon Jun and Elmar Wolfstetter

International Journal of Industrial Organization, 2015, vol. 40, issue C, 11-21

Abstract: If bidders are uncertain whether the auctioneer sticks to the announced reserve, they respond with strategic non-participation, speculating that the auctioneer may revoke the reserve. However, the reserve inadvertently signals the auctioneer's type, which drives multiplicity of equilibria. Eliminating belief systems that violate the “intuitive criterion” yields a unique equilibrium reserve price equal to the seller's consumption value. Paradoxically, even if bidders initially believe that the auctioneer is bound by his reserve almost with certainty, commitment has no value. Commitment is a shorthand for a high cost to re-auction, which may reflect a concern for reputation. Several variations of the model assess the robustness of our results.

Keywords: Auctions; Signaling; Imperfect commitment (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 D45 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:40:y:2015:i:c:p:11-21

DOI: 10.1016/j.ijindorg.2015.02.007

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