Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94011
Authors: 
Ivanova-Stenzel, Radosveta
Kröger, Sabine
Year of Publication: 
2005
Series/Report no.: 
SFB/TR 15 Discussion Paper 92
Abstract: 
This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second 'price sealed' bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers' behavior, but is not sufficient to explain sellers' decisions. We discuss other behavioral explanations that could account for the observed deviations.
Subjects: 
auction
negotiation
combined mechanism
sequential mechanism
risk preferences
experiment
JEL: 
C72
C91
D44
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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