Auctions are commonly used in many different situations (e.g., art, fish, flowers, online advertising, public procurement, and online auctions). But at the same time, many products are sold through posted prices or negotiations, not auctions. In the joint article with Dan Bernhardt and Tingjun Liu, published in Journal of Economic Theory, we identified the “value discovery” as the merit and the “participation cost” as the demerit of auctions in order to study the most profitable way to sell. We find that the relative size of participation cost over the benefit of value discovery determines not only when to sell by auctions instead of selling by negotiations or posted prices, but also whom to favor and the extent of such favoritism.
This is an excerpt of an article written by Takeharu Sogo, professor of economics, FAIRR Research Centre, SKEMA Business School.
Read all of the article here on SKEMA's ThinkForward site