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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

Best Foot Forward or Best for Last in a Sequential Auction?

2006, Rand (Bell) Journal of Economics

Nandini Gupta, Archishman Chakraborty, Rick Harbaugh

Abstract

Should a seller with private information sell the best or worst goods first? Considering the sequential auction of two stochastically equivalent goods, we find that the seller has an incentive to impress buyers by selling the better good first because the seller's sequencing strategy endogenously generates correlation in the values of the goods across periods. When this impression effect is strong enough, selling the better good first is the unique pure-strategy equilibrium. By credibly revealing to all buyers the seller's ranking of the goods, an equilibrium strategy of sequencing the goods reduces buyer information rents and increases expected revenues in accordance with the linkage principle.

Citation

Gupta, Nandini, Archishman Chakraborty, and Rick Harbaugh (2006), "Best Foot Forward or Best for Last in a Sequential Auction?," RAND Journal of Economics, Vol. 37, No. 1, Spring, pp. 176-194.

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