Ordering sellers in sequential auctions

Abstract

We examine how buyers’ behaviors, sellers’ profits and the social welfare (the total surplus of all sellers and buyers) vary with the order of sellers in sequential auctions where sellers have different reservation values. First, when reserve prices are exogenously set to be sellers’ reservation values, a social planner would order sellers from low to high based on their reservation values, which yields a uniquely efficient order that maximizes the social welfare. However, an auctioneer charged with maximizing the total profit of all sellers would want to reverse the increasing order in certain situations. Second, when reserve prices can be endogenously selected in addition to the order of sellers, the auctioneer would always want to adopt the increasing order for the optimally chosen reserve prices. Sequential auctions with optimally chosen reserve prices and an increasing order are shown optimal among the class of voluntary and incentive-compatible mechanisms.