Commodities Failing in Auctions: The Story of Unsold Cod in Norway

Abstract

This study addresses how commodities that go unsold at auction perform when they are resold directly or in a new auction. Given that the share of unsold lots is up to 50% in some markets, this is an important yet neglected topic. We focus on the “burning-effect” hypothesis that buyers may consider other buyers’ opinions – signaled by their lack of willingness to pay for a commodity – while valuing a previously unsold commodity. This implies that commodities that go unsold in auctions are believed to be of lower quality than otherwise identical commodities. With a unique dataset including almost 40,000 frozen Atlantic cod transactions, with detailed information about each lot, including if it was previously unsold at auction, we apply hedonic price modeling to investigate how these lots are priced. The results indicate that when lots are resold directly, where 67% of the unsold lots are traded, they achieve lower prices than otherwise comparable lots, implying support for a burning effect. In the auction market, on the other hand, previously unsold lots achieve higher prices than otherwise comparable lots.

Keywords: Auction, Commodity markets, unsold, burning effects, Atlantic cod