Why Do Sellers at Auctions Bid for Their Own Items? Theory and Evidence

Abstract

This paper illustrates, both theoretically and empirically, the determinants of seller bidding at auctions. Based on search theoretical considerations, seller bids are explained as the seller's rejection of submitted price offers that fall short of his reservation price. The search model allows to derive testable implications on the seller's bidding behavior. Using a unique data set from German auction houses, the estimation results provide evidence that supports the search theoretical implications. For example, seller bidding is complementary to the presence of bidding rings at auction. Moreover, art and antique auctions turn out to be particularly susceptible to seller bidding practices.

Keywords: Auctions, Reservation Price, Search Model, Seller Bids

JEL Classification: C25, D44, D83