Deterministic Vs. Stochastic Entry: A Benefit Of Running An Auction-Negotiation Hybrid Mechanism

Topics:
Negotiations and Contracts
Tags:
Auction,
Benefit,
Entry,
Negotiation
Source:
Ohio State University

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Overview: In auctions with costly entry, the entry process matters. This paper compares expected revenues generated by different entry processes. It is shown that an auction with deterministic entry usually generates more expected revenue than that with stochastic entry. Thus influencing the entry process by reducing the randomness of participation is to the seller's benefit. Based on this insight, a hybrid mechanism combining both auction and negotiation elements is analyzed, in which a sole buyer is selected from an auction process, followed by a negotiation stage. This model shows that such a hybrid mechanism generates higher expected revenue than the one-stage standard auction, as long as the number of potential buyers is sufficiently large.

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Format: PDF | Size: 224KB | Date: Aug 2007 | Pages: 24

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