An 'Alternating Recognition' Model of English Auctions

Management Science, Vol. 46, No. 1, January 2000

Posted: 17 Oct 2001

See all articles by Ron Harstad

Ron Harstad

University of Missouri

Michael H. Rothkopf

Rutgers University, Piscataway

Abstract

We present an alternative abstraction of an English (oral ascending) auction to the standard, in Milgrom and Weber (1982), that accords more closely with practices in some auction markets. In particular, the assumptions that exits are irrevocable and necessarily public are dropped, making endogenous the decision to compete silently and privately, or openly. In the model, the price rises in a stylization of an auctioneer alternately recognizing two bidders who affirm willingness to pay the current price. The auctioneer pays attention to other bidders only when a recognized bidder exits. Such exits may be temporary, although we construct an equilibrium in which there is no benefit to exit and reentry. The number of public exits is stochastic; frequently a losing "bidder" will remain silent, giving no indication of his willingness to pay, and hence yielding no useful inference about his private information. Thus, the source of the expected revenue advantage of English auctions over second-price auctions is only stochastically available. Moreover, when public exits are incomplete, the ordinal rank of the bidder whose private information can be inferred is unknown, making that information less valuable. Consequently, the simpler formula for expected revenue in second-price auctions may be the preferred approximation for English auctions.

Keywords: Competitive bidding, oral auctions, auction theory, information disclosure in auctions

JEL Classification: D44

Suggested Citation

Harstad, Ronald M and Rothkopf, Michael H., An 'Alternating Recognition' Model of English Auctions. Management Science, Vol. 46, No. 1, January 2000. Available at SSRN: https://ssrn.com/abstract=275337

Ronald M Harstad (Contact Author)

University of Missouri ( email )

United States

HOME PAGE: http://harstad.missouri.edu

Michael H. Rothkopf

Rutgers University, Piscataway ( email )

Rutgers Business School and RUTCOR
Rutcor Modular Bldg, Room 121
Piscataway, NJ 08854
United States
732-445-0266 (Phone)
732-445-5472 (Fax)

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