Auctions versus Private Negotiations in Buyer-Seller Networks

26 Pages Posted: 20 May 2015

See all articles by Alison C. Watts

Alison C. Watts

Southern Illinois University - Department of Economics

Date Written: April 22, 2015

Abstract

Buyer-seller networks where price is determined by an ascending-bid auction are important in many economic examples such as certain real estate markets, radio spectrum sharing, and buyer-supplier networks. However, it may be that some sellers are better off not participating in the auction. We consider what happens if sellers can make a take it or leave it offer to one of their linked buyers before the auction takes place and thus such a seller can choose not to participate in the auction. We give conditions on the graph and buyers valuations under which the buyer and seller will both agree to such a take it or leave it offer. Specifically, the buyer-seller pair will choose private negotiation over the auction if the seller acts as a network bridge with power over the buyer and if there are enough buyers with low valuations so that the seller does not expect to receive a high price in the auction.

Keywords: auctions, buyer-seller networks, bridges

JEL Classification: C7, D44, D85

Suggested Citation

Watts, Alison C., Auctions versus Private Negotiations in Buyer-Seller Networks (April 22, 2015). Available at SSRN: https://ssrn.com/abstract=2607717 or http://dx.doi.org/10.2139/ssrn.2607717

Alison C. Watts (Contact Author)

Southern Illinois University - Department of Economics ( email )

Carbondale, IL 62901
United States

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