Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67762
Authors: 
Wang, Ruqu
Zhang, Jun
Year of Publication: 
2010
Series/Report no.: 
Queen's Economics Department Working Paper 1235
Abstract: 
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.
Subjects: 
auctions
return policies
refund
JEL: 
D44
D72
D82
Document Type: 
Working Paper

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