Sequential Auctions with Informational Externalities and Aversion to Price Risk: Decreasing and Increasing Price Sequences

Abstract

A large body of empirical research has shown that prices of identical goods sold sequentially sometimes increase and often decline across rounds. This paper introduces a tractable form of risk aversion, called aversion to price risk, and shows that declining prices arise naturally when bidders are averse to price risk. When there are informational externalities, there is a countervailing e¤ect which pushes prices to raise along the path of a sequential auction, even if bidder's signals are independent. The paper shows how to decompose the e¤ect of aversion to price risk from the e¤ect of informational externalities.Journal of Economic Literature Classi…cation Numbers: D44, D82.

Timing and presentation effects in sequential auctions

“…Given this insight, it is logical to search for a theoretical explanation of this phenomenon that can be empirically tested. Unfortunately, none of the theoretical explanations that we are aware of (e.g., Ashenfelter, 1989;McAfee & Vincent, 1993;von der Fehr, 1994;Mezzetti, 2011;Rosato, 2014) have predictions that can be tested empirically unless estimates of the risk preferences, loss aversion or participation costs are available. The problem of finding alternative theoretical explanations to the afternoon effect is left for future research.…”

Sequential Auctions with Generalized Interdependent Values

“…While risk aversion provides a plausible explanation for declining prices, this conclusion has been derived only for the private values case (e.g., McAfee and Vincent, 1993;Mezzetti, 2011;. 2 Risk aversion does not necessarily imply declining prices under positive informational externalities (PIE) such that all bidders'values are nondecreasing functions of every other bidder's type or signal (e.g., Mezzetti, 2011).…”

Sequential auctions, price trends, and risk preferences

“…This is Case 2 of Maskin and Riley (1984). For U risk neutral, de…ne`(p) = '( p) and assumè 00 = ' 00 0: Then w( p; t) = v(t) `(p) and the model reduces to Mezzetti (2011) for his private-values case. The partial derivative w 1 ( p; t) =`0( p) is independent of t; so that (2) holds as an equality.…”

“…See, e.g., Mezzetti (2011). for sale. The equations (8) say about the same thing, although not in terms of dominant strategies: in the sequential Vickrey auction it is optimal to bid up to the level in each period k such that the bidder is indi¤erent whether paying his bid and win or losing the kth period of the auction.…”

“…Appendix A der Fehr (1994); Jeitschko (1999); Gale and Stegeman (2001);Pitchick and Schotter (1988);Beggs and Graddy (1997); Ginsburgh (1998);Eyster (2002); Kittsteiner et al (2004);and Mezzetti (2011), among others.…”