Selling Goods of Unknown Quality: Forward Versus Spot Auctions

13 Pages Posted: 11 Jan 2010

See all articles by Isa Emin Hafalir

Isa Emin Hafalir

University of Technology Sydney (UTS); Carnegie Mellon University - David A. Tepper School of Business

Hadi Yektas

Antalya International University

Date Written: January 7, 2010

Abstract

We consider an environment where the sale can take place so early that both the seller and the potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to put the good for sale before or after this uncertainty is resolved, namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting revenues. We also consider the revenue implications of the insurance in forward auctions.

Keywords: Forward Trading, Forward Auctions, Spot Auctions

JEL Classification: D44

Suggested Citation

Hafalir, Isa Emin and Yektas, Hadi, Selling Goods of Unknown Quality: Forward Versus Spot Auctions (January 7, 2010). Available at SSRN: https://ssrn.com/abstract=1533005 or http://dx.doi.org/10.2139/ssrn.1533005

Isa Emin Hafalir (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Hadi Yektas

Antalya International University ( email )

Üniversite Cad. No:2
Döşemealtı, 07190
Turkey

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