Common Value Auctions with Return Policies

This paper examines the role of return policies in common value auctions. We first characterize the unique symmetric equilibrium in first-price and second-price auctions with continuous signals and discrete common values when certain return policies are provided. We then examine how the return policies affect a seller’s revenue. When the lowest common value is zero, a more generous return policy generates a higher seller’s revenue; the full refund policy extracts all the surplus and therefore implements the optimal selling mechanism; given any return policy, a second-price auction generates a higher revenue than a first-price auction. In a second-price auction where the lowest common value is not zero but still smaller than the seller’s reservation value, then a more generous return policy also generates a higher revenue; otherwise, the optimal return policy could be a full refund, no refund or partial refund policy.


Issue Date:
2010-04
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/273735
Language:
English
Total Pages:
39
JEL Codes:
D44; D72; D82
Series Statement:
Working Paper No. 1235




 Record created 2018-06-20, last modified 2020-10-28

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