Skip to main content
SpringerLink
Log in

Selling goods of unknown quality: forward versus spot auctions

  • Original paper
  • Published:
Review of Economic Design Aims and scope Submit manuscript

Abstract

We consider an environment where the sale can take place so early that both the seller and potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to offer the good for sale before or after this uncertainty is resolved, namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting expected revenues. We also consider the revenue implications of insurance in forward auctions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 47: 263–291

    Article  Google Scholar 

  • Kogan S, Morgan J (2010) Securities auctions under moral hazard: an experimental study. Rev Finance 14: 477–520

    Article  Google Scholar 

  • Lewis G (2011) Asymmetric information, adverse selection and online disclosure: the case of eBay motors. Am Econ Rev (forthcoming)

  • Maskin E, Riley JG (1984) Optimal auctions with risk averse buyers. Econometrica 52: 1473–1518

    Article  Google Scholar 

  • Matthews S (1987) Comparing auctions for risk averse buyers: a buyer’s point of view. Econometrica 55: 633–646

    Article  Google Scholar 

  • McDaniel T, Neuhoff K (2004) Auctions to gas transmission access: the British experience. In: Janssen M (ed) Auctioning Public Assets. Cambridge University Press, Cambridge, pp 197–229

    Chapter  Google Scholar 

  • Milgrom P, Weber R (1982) A theory of auctions and competitive bidding. Econometrica 50: 1089–1122

    Article  Google Scholar 

  • Phillips O, Menkhaus D, Krogmeier J (2001) Laboratory behavior in spot and forward auction markets. Exp Econ 4: 243–256

    Google Scholar 

  • Tversky A, Kahneman D (1991) Loss aversion in riskless choice: a reference dependent model. Q J Econ 106: 1039–1061

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, 15213, USA

    Isa E. Hafalir

  2. Department of Economics, Zirve University, Kizilhisar Kampusu, Gaziantep, Turkey

    Hadi Yektaş

  3. Department of Economics, University of Melbourne, Melbourne, VIC, 3010, Australia

    Hadi Yektaş

Authors
  1. Isa E. Hafalir
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Hadi Yektaş
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Isa E. Hafalir.

Additional information

Isa Hafalir thanks the University of Melbourne for hosting him during the early stages of the project and National Science Foundation for grant SES 0752931.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Hafalir, I.E., Yektaş, H. Selling goods of unknown quality: forward versus spot auctions. Rev Econ Design 15, 245–256 (2011). https://doi.org/10.1007/s10058-011-0110-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10058-011-0110-6

Keywords

JEL Classification

Search

Navigation