Recurring Auctions with Costly Entry: Theory and Evidence

By Shanglyu DENG and Qiyao ZHOU
Forthcoming in American Economic Journal: Microeconomics

Abstract:

Recurring auctions are ubiquitous for selling durable assets such as artwork and homes, with follow-up auctions held for unsold items. We investigate such auctions theoretically and empirically. Theoretical analysis demonstrates that recurring auctions outperform single-round auctions when buyers face entry costs, enhancing efficiency and revenue due to sorted entry of potential buyers. Optimal reserve price sequences are characterized. Empirical findings from home foreclosure auctions in China reveal significant annual gains in efficiency (3.40 billion USD, 16.60%) and revenue (2.97 billion USD, 15.92%) using recurring auctions compared with single-round auctions. Implementing optimal reserve prices can further improve efficiency (3.35%) and revenue (3.06%).