Are eBay Auctions Efficient? Sequential Ascending Auctions with New Buyer Entries

Abstract

I model the environment of Internet auction sites, such as eBay, as sequential ascending auctions. New buyers may enter the auction site after some of the auctions have completed and only bid for the remaining auctions. I characterize a perfect Bayesian equilibrium in the dynamic game. Because incumbent buyers have revealed their own valuations in earlier auctions while new entrants do not, information is asymmetric among buyers during the bidding process. Consequently, their bidding strategies are different. A lower-valuation buyer may win an auction while a higher-valuation buyer restrains from bidding higher, resulting an inefficient allocation. In general, the expected transaction prices would increase over time. Comparing to selling the multiple items in a single-round simultaneous auction, sellers can exploit the information asymmetry in sequential auctions to obtain a higher revenue.