Discounting in Sequential Auctions

Thomas Kittsteiner, Jörg Nikutta () and Eyal Winter ()
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Jörg Nikutta: Universität Mannheim, Postal: L 7, 3 - 5, D-68131 Mannheim

No 02-15, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: We analyze an independent private values model where a number of objects are sold in sequential first- and second-price auctions. Bidders have unit demand and their valuation for an object is decreasing in the rank number of the auction to which it is sold. Whether prices are announced after each auction or if no information is given to bidders, we derive efficient equilibria. Our main result shows that the sequence of prices constitutes a supermartingale. Even if we correct for the decrease in valuations for objects sold in later auctions we find that average prices are declining. Our result helps explain the declining price anomaly and the afternoon effect observed in sequential auctions.

Pages: 24 pages
Date: 2002-02-18
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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