A Note on Sequential Auctions

Abstract

This note explores multiobject, sequential, private-value auctions. Orley Ashenfelter (1989), Ashenfelter and David Genesove (1992), and R. Preston McAfee and Daniel Vincent (1993) document a puzzling "declining-price anomaly": in sequential auctions, mean sale prices for identical objects fall in later auctions by 0.25-1.5 percent.1 McAfee and Vincent observe that these findings are difficult to reconcile with accepted theory. Robert Weber (1983) shows that in sequential auctions of identical objects with risk-neutral bidders who hold in- dependent private values, the expected sale prices in each auction are identical. Further, if there is affiliation in values, then expected prices should rise in later auctions because early auctions release information, thereby reducing winner's curse concerns. McAfee and Vincent show that risk-aversion explanations are problematic. Pure- strategy equilibria with declining prices re- quire nondecreasing absolute risk aversion, something that does not seem to characterize individuals' attitudes toward risk. De- creasing absolute risk aversion is compatible with mixed-strategy equilibria, but when bidders randomize their bids, the auction need not be ex post efficient, as someone other that the highest-valuation bidder may win an object. This raises the possibility of resale.