Auctions with Prestige Motives
KU Leuven Discussion Paper Series DPS14.19
43 Pages Posted: 14 Oct 2014
Date Written: July 2014
Social status, or prestige, is an important motive for buying art or collectibles and for participation in charity auctions. We study a symmetric private value auction with prestige motives, in which the auction outcome is used by an outside observer to infer the bidders’ types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in four auction formats: first-price, second-price, all-pay and the English auction. We obtain a strict ranking in terms of expected revenues: the first-price and all-pay auctions are dominating the English auction but are dominated by the second-price auction. Expected revenue equivalence is restored asymptotically for the number of bidders going to infinity.
Keywords: costly signaling; D1 criterion; social status; art auctions, charity auctions
JEL Classification: D44, D82
Suggested Citation: Suggested Citation