Slow Dutch Auctions

Octavian Carare () and Michael Rothkopf ()
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Octavian Carare: School of Management, University of Texas at Dallas, Richardson, Texas 75083-0688
Michael Rothkopf: MSIS Department and RUTCOR, Rutgers University, 640 Bartholomew Road, Piscataway, New Jersey 08854-8003

Management Science, 2005, vol. 51, issue 3, 365-373

Abstract: Theorists have long believed that Dutch auctions are strategically equivalent to standard sealed bidding. However, in recent controlled experiments with actual Dutch and sealed-bid Internet auctions of collectibles, the Dutch auctions produced significantly more revenue. We believe that this happened, in part, because the Internet Dutch auctions are a slow process in which bidders incur incremental transaction costs if they delay bidding. This paper presents models of slow Dutch auctions that include these costs and explain this belief. We first present a decision-theoretic model of a slow Dutch auction. While simple, the decision-theoretic model is fairly general and provides the basic intuition underlying our revenue results. We then develop a game-theoretic model of a slow Dutch auction. We derive two symmetric, payoff-equivalent equilibria of the game in the absence of a cost of return and then consider the more general case of costly return. When the cost of return is in an appropriate range, the seller's expected revenue is an increasing function of that cost.

Keywords: Dutch auction; transaction costs (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:51:y:2005:i:3:p:365-373

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