Abstract:

Sequential auctions frequently take place to sell multiple units of similar objects. This paper analyzes bidding strategies, price trends, and equilibrium outcomes for a general class of sequential auctions where bidders’ valuations for the auctioned object can be arbitrarily interdependent.  Upon establishing a perfect Bayesian equilibrium for a wide class of sequential auctions, we obtain unambiguous predictions regarding the expected price trends: it is necessarily upward drifting if bidders are risk-seeking and their valuations exhibit positive interdependence and downward drifting if bidders are risk-averse and their valuations exhibit negative interdependence. The latter prediction provides a plausible explanation for the “declining price anomaly” that has remained a puzzle to many.