Common Value Auctions With Return Policies

Ruqu Wang () and Jun Zhang ()

No 1235, Working Paper from Economics Department, Queen's University

Abstract: This paper examines the role of return policies in common value auctions. We firstcharacterize the unique symmetric equilibrium in first-price and second-price auctionswith continuous signals and discrete common values when certain return policies areprovided. We then examine how the return policies affect a sellerÂ’s revenue. When thelowest common value is zero, a more generous return policy generates a higher sellerÂ’srevenue; the full refund policy extracts all the surplus and therefore implements theoptimal selling mechanism; given any return policy, a second-price auction generates ahigher revenue than a first-price auction. In a second-price auction where the lowestcommon value is not zero but still smaller than the sellerÂ’s reservation value, then amore generous return policy also generates a higher revenue; otherwise, the optimalreturn policy could be a full refund, no refund or partial refund policy.

Keywords: return policies; auctions; refund (search for similar items in EconPapers)
JEL-codes: D44 D72 D82 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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