Recurring Auctions with Costly Entry: Theory and Evidence

TL;DR

This paper analyzes recurring auctions for durable assets, showing they outperform single-round auctions in efficiency and revenue when buyers face entry costs, supported by theoretical models and empirical evidence from Chinese foreclosure auctions.

Contribution

It provides a theoretical framework for recurring auctions with costly entry and empirical evidence demonstrating their efficiency and revenue benefits.

Findings

Recurring auctions increase efficiency and revenue compared to single-round auctions.

Optimal reserve price sequences further improve auction outcomes.

Empirical analysis from Chinese foreclosure auctions quantifies significant gains.

Abstract

Recurring auctions are ubiquitous for selling durable assets like artworks 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 to single-round auctions. Implementing optimal reserve prices can further improve efficiency (3.35%) and revenue (3.06%).