How to Set a Deadline for Auctioning a House
40 Pages Posted: 8 Apr 2020 Last revised: 26 May 2020
Date Written: January 15, 2020
We investigate the optimal choice of an auction deadline by a house seller who commits to this deadline before the arrival of any buyers. In our model buyers have evolving outside options, and their bidding behaviors change over time. We find that if the seller runs an optimal auction, then she should choose a longer deadline. However, if the seller runs a second-price auction, then a shorter deadline could potentially help her. Moreover, the seller can extract information about buyers' outside options by selling them contracts similar to European call options. Finally, the optimal dynamic mechanism is equivalent to setting a longer deadline and running an auction on the last day.
Keywords: housing, auctions, deadline, dynamic mechanism design, information disclosure
JEL Classification: D44, D82, R31
Suggested Citation: Suggested Citation