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The buyer's option in multi-unit ascending auctions: the case of wine auctions at Drouot

Philippe Février (), Roos William and Michael Visser ()

Research Unit Working Papers from Laboratoire d'Economie Appliquee, INRA

Abstract: This paper studies multi-unit ascending (English) auctions with a buyer’s option. The buyer’s option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines...) that are tested using a unique data set on wine auctions held at the Paris-based auction house Drouot. We also analyze why the buyer’s option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer’s option does not affect the seller’s revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time saving effect seems thus to be the primary purpose of the buyer’s option.

Keywords: buyer's option; multi-unit ascending auctions; wine auctions (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2004-06
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Journal Article: The Buyer's Option in Multi-Unit Ascending Auctions: The Case of Wine Auctions at Drouot (2005) Downloads
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