How to Set a Deadline for Auctioning a House

40 Pages Posted: 8 Apr 2020 Last revised: 26 May 2020

See all articles by Alina Arefeva

Alina Arefeva

UW Madison - Wisconsin School Business

Delong Meng

Shanghai Jiao Tong University

Date Written: January 15, 2020

Abstract

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

Arefeva, Alina and Meng, Delong, How to Set a Deadline for Auctioning a House (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3520197 or http://dx.doi.org/10.2139/ssrn.3520197

Alina Arefeva (Contact Author)

UW Madison - Wisconsin School Business ( email )

975 University Avenue
Madison, WI 53706
United States

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

Delong Meng

Shanghai Jiao Tong University ( email )

Shanghai
China

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