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S ystematic P rice D ifferences B etween S uccessive A uctions are no A nomaly
Author(s) -
Black Jane,
de Meza David
Publication year - 1992
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1992.00607.x
Subject(s) - common value auction , economics , rational expectations , revenue , microeconomics , risk aversion (psychology) , econometrics , financial economics , expected utility hypothesis , accounting
Identical cases of wine are often auctioned one immediately after another. Ashenfelter (1989) reports that on average, the later lots fetch less. Such a systematic price difference seems anomalous, the more so because it is shown here that rational expectations imply not equal, but rising, prices. Risk aversion is an obvious way of reconciling the evidence with rational behavior. There is an alternative explanation. The auctions observed by Ashenfelter involved a buyer's option, whereby the first‐round winner could purchase further cases at the same price. It is shown that this feature may both account for the observed price trajectory and raise seller revenue.