UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN BOOKSTACKS Digitized by the Internet Archive in 2011 with funding from University of Illinois Urbana-Champaign http://www.archive.org/details/sequentialauctio91161enge Faculty Working Paper 91-0161 30 385 991:161 COPY 2 Sequential Auctions of Non-Identical Objects Richard Engelbrecht-Wiggans Department ofBusinessAdministration University ofIllinois % tibraiy NOV > 1991 *S&Sx* Bureau ofEconomic and Business Research College ofCommerce and Business Administration University of Illinois at Urbana-Champaign BEBR FACULTY WORKING PAPER NO. 91-0161 College of Commerce and Business Administration University of Illinois at Clrbana-Champaign August 1991 Sequential Auctions of Non-Identical Objects Richard Engelbrecht-Wiggans Department of Business Administration University of Illinois Sequential Auctions of Non- Iden tica 1 Objects Richard Enge brec ht-Wiggans 1 Department of Business Administration University of Illinois Urbana-Champaign 1206 South Sixth Street Champaign, IL 61820 August 1991 Abstract: Weber [1983] argues that the expected equilibrium prices of identical objects auctioned sequentially to expected profit maximizing bidders with symmetrically distributed privately-known values (with each bidder winning at most one object) should all be equal. In fact, in actual auctions, the prices seems to tend — downwards. We show that for similar objects objects having — statistically identical, independent values the trend will be upwards in some cases, but the overall trend will be downwards for any value distribution with bounded support. We also consider non-similar (but still independent) objects and argue that the seller benefits from selling first the objects that contribute most to bidders' profits. To the extent that — bidders most highly value those objects with high variance high — variance in bidders' values leads to high winner profits sequentially auctioning the option to choose one of the remaining objects implements a good order.