Selling to Advised Buyers

50 Pages Posted: 12 Dec 2015 Last revised: 22 Sep 2018

See all articles by Andrey Malenko

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Anton Tsoy

University of Toronto - Department of Economics

Date Written: September 4, 2018

Abstract

In many cases, buyers are not informed about their valuations and rely on experts, who are informed but biased for overbidding. We study auction design when selling to such “advised buyers”. We show that a canonical dynamic auction, the English auction, has a natural equilibrium that outperforms standard static auctions in expected revenues and allocative efficiency. The ability to communicate as the auction proceeds allows for more informative communication and gives advisors the ability to persuade buyers into overbidding. The same outcome is the unique equilibrium of the English auction when bidders can commit to contracts with their advisors.

Keywords: auction design, mechanism design, communication, cheap talk

JEL Classification: D44, D47, D82

Suggested Citation

Malenko, Andrey and Tsoy, Anton, Selling to Advised Buyers (September 4, 2018). Available at SSRN: https://ssrn.com/abstract=2701915 or http://dx.doi.org/10.2139/ssrn.2701915

Andrey Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Anton Tsoy

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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