Auctions with Prestige Motives

KU Leuven Discussion Paper Series DPS14.19

43 Pages Posted: 14 Oct 2014

See all articles by Olivier Bos

Olivier Bos

Université Paris II - Panthéon-Assas

Tom Truyts

KU Leuven - Faculty of Business and Economics (FEB); Facultés Universitaires Saint Louis à Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: July 2014

Abstract

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

Bos, Olivier and Truyts, Tom, Auctions with Prestige Motives (July 2014). KU Leuven Discussion Paper Series DPS14.19, Available at SSRN: https://ssrn.com/abstract=2509226 or http://dx.doi.org/10.2139/ssrn.2509226

Olivier Bos (Contact Author)

Université Paris II - Panthéon-Assas ( email )

12 place du Pantheon
Paris cedex 06, 75231
France

Tom Truyts

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Facultés Universitaires Saint Louis à Bruxelles ( email )

Boulevard du Jardin Botanique 43
Bruxelles, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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