56 Pages Posted: 25 Mar 2016 Last revised: 7 Dec 2016
Date Written: December 7, 2016
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: 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