Investigating potential purchases is often a substantial investment under
uncertainty. Standard market designs, such as simultaneous or English auctions,
compound this with uncertainty about the price a bidder will have to pay in
order to win. As a result they tend to confuse the process of search both by
leading to wasteful information acquisition on goods that have already found a
good purchaser and by discouraging needed investigations of objects,
potentially eliminating all gains from trade. In contrast, we show that the
Dutch auction preserves all of its properties from a standard setting without
information costs because it guarantees, at the time of information
acquisition, a price at which the good can be purchased. Calibrations to
start-up acquisition and timber auctions suggest that in practice the social
losses through poor search coordination in standard formats are an order of
magnitude or two larger than the (negligible) inefficiencies arising from
ex-ante bidder asymmetries.Comment: JEL Classification: D44, D47, D82, D83. 117 pages, of which 74 are
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