Descending Price Optimally Coordinates Search

56 Pages Posted: 25 Mar 2016 Last revised: 7 Dec 2016

Bobby Kleinberg

Microsoft Research New England

Bo Waggoner

Harvard University Department of Computer Science

E. Glen Weyl

Microsoft Research; Yale University

Date Written: December 7, 2016

Abstract

Investigating potential purchases is often a substantial investment under uncertainty. Standard market designs, such as simultaneous or English auctions, compound this with uncertainty about the price a bidder will have to pay in order to win. As a result they tend to confuse the process of search both by leading to wasteful information acquisition on goods that have already found a good purchaser and by discouraging needed investigations of objects, potentially eliminating all gains from trade. In contrast, we show that the Dutch auction preserves all of its properties from a standard setting without information costs because it guarantees, at the time of information acquisition, a price at which the good can be purchased. Calibrations to start-up acquisition and timber auctions suggest that in practice the social losses through poor search coordination in standard formats are an order of magnitude or two larger than the (negligible) inefficiencies arising from ex-ante bidder asymmetries.

Keywords: Dutch auction, information acquisition, search, matching, descending price, assignment

JEL Classification: D44, D47, D82, D83

Suggested Citation

Kleinberg, Bobby and Waggoner, Bo and Weyl, E. Glen, Descending Price Optimally Coordinates Search (December 7, 2016). Available at SSRN: https://ssrn.com/abstract=2753858 or http://dx.doi.org/10.2139/ssrn.2753858

Robert Kleinberg

Microsoft Research New England ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

HOME PAGE: http://www.cs.cornell.edu/~rdk/

Bo Waggoner

Harvard University Department of Computer Science ( email )

33 Oxford Street
Cambridge, MA 02138
United States

Eric Glen Weyl (Contact Author)

Microsoft Research ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
(857) 998-4513 (Phone)

HOME PAGE: http://www.glenweyl.com

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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