Marco Pagnozzi (University of Naples Federico II)

“Rating Bidders in Sequential Auctions”

Abstract. A seller sells two identical objects through sequential second-price auctions with reserve prices. Bidders’ values follow independent and persistent stochastic processes. The seller observes the transaction price in the early auction and uses this information to set the reserve in the late one. We show that outcomes that convey more optimistic information on bidders’ values may lead the seller to set a lower reserve price. Because bids reveal information, bidders in the early auction (i) are less likely to participate and (ii) shade their bids when they do participate. Decreasing persistence reduces the first margin, but widens the second one. Compared to a static auction, in the early auction the seller prefers to induce (i) more participation to increase current revenue but (ii) less participation for information acquisition. Overall, information increases efficiency because it increases second-period trade, but reduces the seller’s revenue. Despite increasing potential surplus, decreasing persistence may hurt the seller.