Economic Theory

, Volume 34, Issue 1, pp 47–67 | Cite as

Second chance offers versus sequential auctions: theory and behavior

  • Timothy C. Salmon
  • Bart J. WilsonEmail author
Research Article


Second chance offers in online marketplaces involve a seller conducting an auction for a single object and then using information from the auction to offer a losing bidder a take-it-or-leave-it price for another unit. We theoretically and experimentally investigate this practice and compare it to two sequential auctions. We show that the equilibrium bidding strategy in the second chance offer mechanism only exists in mixed strategies, and we observe that this mechanism generates more profit for the auctioneer than two sequential auctions. We also observe virtually no rejections of profitable offers in the ultimatum bargaining stage.


Ascending auctions Ultimatum games Mixed strategies Experimental economics 

JEL Classification Numbers

D44 C90 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Bajari P., Hortacsu A. (2003) Cyberspace auctions and pricing issues: a review of empirical findings. In: Jones D.C. (eds) New Economy Handbook. San Diego, CA: Academic Press, pp. 163–211Google Scholar
  2. Bryan, D., Prasad, N., Reeves, D., Reiley, D.: Pennies from eBay: the determinants of price in online auctions. University of Arizona Working Paper (2005)Google Scholar
  3. Camerer C. (2003) Behavioral game theory: Experiments in Strategic Interaction. Princeton, NJ: Princeton University PressGoogle Scholar
  4. Croson R. (1996) Information in ultimatum games: an experimental study. J Econ Behav Organ 30, 197–212CrossRefGoogle Scholar
  5. Engelbrecht-Wiggans R. (1996) Auctions with noncompetitive sales. Games Econ Behav 16, 54–64CrossRefGoogle Scholar
  6. Engelbrecht-Wiggans, R., Katok, E.: E-sourcing in procurement: theory and behavior in reverse auctions with non-competitive contracts. Penn State Working Paper (2004)Google Scholar
  7. Forsythe R., Horowitz J.L., Savin N.E., Sefton M. (1994) Fairness in simple bargaining experiments. Games Econ Behav 6, 347–369CrossRefGoogle Scholar
  8. Goeree J.K. (2003) Bidding for the future: signaling in auctions with an aftermarket. J Econ Theory 108, 345–364CrossRefGoogle Scholar
  9. Goeree, J.K., Plott, C.R., Wooders, J.: Bidders’ choice auctions: raising revenues through the right to choose. California Institute of Technology Working Paper (2003)Google Scholar
  10. Guth W., Schmittberger R., Schwarze B. (1982) An experimental analysis of ultimatum bargaining. J~Econ Behav Organ 3, 367–388CrossRefGoogle Scholar
  11. Guth W., Tietz R. (1990) Ultimatum bargaining behavior: a survey and comparison of experimental results. J Econ Psychol 11, 417–449CrossRefGoogle Scholar
  12. Haile P.A. (2003) Auctions with private uncertainty and resale opportunities. J Econ Theory 108, 82–110CrossRefGoogle Scholar
  13. Hoffman E., McCabe K., Shachat K., Smith V.L. (1994) Preferences, property rights, and anonymity in bargaining games. Games Econ Behav 7, 346–380CrossRefGoogle Scholar
  14. Ivanova-Stenzel, R., Kröger, S.: Behavior in a combined institution: auctions with a pre-negotiation stage. University of Arizona Working Paper (2004)Google Scholar
  15. Kagel J.H. (1995) Auctions: a survey of experimental research. In: Kagel J.H., Roth A.E. (eds) The Handbook of Experimental Economics. Princeton, NJ: Princeton University Press, pp. 501–557Google Scholar
  16. Krishna V. (2002) Auction Theory. San Diego, CA: AcademicGoogle Scholar
  17. Levin D., Smith J.L. (1994) Equilibrium in auctions with entry. Am Econ Rev 84, 585–599Google Scholar
  18. Lucking-Reiley D. (2000) Auctions on the internet: what’s being auctioned and how?. J Indus Econ 48, 227–52CrossRefGoogle Scholar
  19. Milgrom P.R., Weber R.J. (2000) A theory of auctions and competitive bidding, II. In: Klemperer P. (ed) The Economic Theory of Auctions. Cheltenham, UK: Edward Elgar Press, pp. 179–194Google Scholar
  20. Rapoport A., Amaldoss W. (2004) Mixed strategy play in single-stage first-price all-pay auctions with symmetric players. J Econ Behav Organ 54, 585–607CrossRefGoogle Scholar
  21. Roth A.E. (1995) Bargaining experiments. In: Kagel J.H., Roth A.E. (eds) The Handbook of Experimental Economics. Princeton, NJ: Princeton University Press, pp. 253–348Google Scholar
  22. Roth A.E., Ockenfels A. (2002) Last-minute bidding and the rules for ending second-price auctions: Evidence from eBay and Amazon auctions on the Internet. Am Econ Rev 92, 1093–1103CrossRefGoogle Scholar
  23. Segal I. (2003) Optimal pricing mechanisms with unknown demand. Am Econ Rev 93, 509–529Google Scholar
  24. Thaler R. (1988) Anamolies: the ultimatum game. J Econ Perspect 2, 195–206Google Scholar
  25. Zeithammer, R.: Forward-looking bidders in online auctions. University of Chicago Working Paper (2004)Google Scholar

Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of EconomicsFlorida State UniversityTallahasseeUSA
  2. 2.Interdisciplinary Center for EconomicsGeorge Mason UniversityFairfaxUSA

Personalised recommendations