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Price differences between successive auctions are no anomaly

By David de Meza and Julia Black


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

Topics: HB Economic Theory
Publisher: Wiley
Year: 1992
DOI identifier: 10.1111/j.1430-9134.1992.00607.x
OAI identifier:
Provided by: LSE Research Online
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