Integrating Auction and Search Markets: The Slow Dutch Auction

Paul D Adams, Brian D Kluger and Steve B Wyatt

The Journal of Real Estate Finance and Economics, 1992, vol. 5, issue 3, 239-53

Abstract: The issue of choosing to sell property by auction or by traditional negotiated search markets is addressed in this article. A general selling institution called the slow Dutch auction is introduced. This general selling mechanism reduces to either a conventional auction, a posted offer, or some time dependent mix of these selling institutions depending on the pricing rule chosen by the seller. The authors model search by having potential buyers whose private valuation for the property is unknown to the seller arrive randomly over time. With this general framework the seller's problem is to choose a selling mechanism that maximizes expected wealth. Surprisingly, they find that the optimal selling institution is always a posted.offer market. The seller chooses an optimal posted price and waits until a buyer arrives who is willing to pay this price. Auctions are never optimal. Copyright 1992 by Kluwer Academic Publishers

Date: 1992
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