Integrating auction and search markets: The slow Dutch auction |
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Authors: | Paul D Adams Brian D Kluger Steve B Wyatt |
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Institution: | (1) Department of Finance & Real Estate, College of Business Administration, University of Cincinnati, Mail Location #0195, 45221-0195 Cincinnati, Ohio, USA |
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Abstract: | The issue of choosing to sell property by auction or by traditional negotiated search markets is addressed in this article.
A general selling institution called the slow Dutch auction is introduced. This general selling mechanism reduces to either
a conventional auction, a posted offer, or some time dependent mix of these selling institutions depending on the pricing
rule chosen by the seller. We model search by having potential buyers whose private valuation for the property is unknown
to the seller arrive randomly over time. With this general framework the seller's problem is to choose a selling mechanism
that maximizes expected wealth. Surprisingly, we find that the optimal selling institution is always a posted offer market.
The seller chooses an optimal posted price and waits until a buyer arrives who is willing to pay this price. Auctions are
never optimal. |
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Keywords: | Real estate auctions Search markets Optimal auctions Negotiated markets Posted offer markets Resolution trust corporation |
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