Why Sellers Avoid Auctions: Theory and Evidence

Peyman Khezr

The Journal of Real Estate Finance and Economics, 2018, vol. 56, issue 2, No 1, 163-182

Abstract: Abstract The theoretical literature suggests that the seller of a unique object maximizes her expected revenue by running a standard auction with an optimally chosen reserve price. However, in reality, there are instances in which sellers decide to accept an offer before the auction starts and cancel the auction. This paper first theoretically investigates the rationale behind this type of behavior and then empirically analyses evidence from real-world auctions. In particular, we suggest that, if some individuals are risk averse—in contrast to the standard auction theory models, in which all parties are risk neutral—then it is possible that accepting a price before the auction maximizes the expected revenue for the seller. Finally, with data on housing market auctions, we show evidence of such behavior and further investigate the implications of the theory.

Keywords: Auction; Risk aversion; Real estate (search for similar items in EconPapers)
JEL-codes: D44 D82 R32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-016-9594-8

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