Selling to Advised Buyers

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

See all articles by Andrey Malenko

Andrey Malenko

Boston College; European Corporate Governance Institute (ECGI)

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)

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.amalenko.com

Anton Tsoy

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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