Selecting a Selling Institution: Auctions versus Sequential Search
Michael Arnold () and
Steven A Lippman
Economic Inquiry, 1995, vol. 33, issue 1, 1-23
The authors consider the seller's choice between sequential search and an auction when selling n homogeneous units of a good in the presence of informational asymmetries, discounting, and transaction costs. Their analysis shows that the expected return per unit from sequential selling decreases in n, the number of units being sold. For the auction with suitable restrictions, the expected return per unit increases in n. Thus, sequential search is the preferred institution if n is small, whereas the auction is preferred if n is large. Historical details of the evolution of livestock markets closely fit the authors' theoretical results. Copyright 1995 by Oxford University Press.
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