Bottom-Fishing and Declining Prices in Sequential Auctions

Abstract

We study standard sequential auctions, in which the seller chooses the order of sale, and right-to-choose auctions, in which the winner chooses her preferred item from the remaining items. Empirically, prices in sequential auctions tend to decline, and sellers often hold right-to-choose auctions. In our setting, the right-to-choose format guarantees declining prices and efficiency. In the standard auction, a buyer may submit a low bid for the first item ("bottom-fishing") despite its being her less-preferred item. An example shows that the standard auction has declining prices, is inefficient, and gives lower expected revenue than the right-to-choose. Journal of Economic Literature Classification Numbers: D44, D82.