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Toshihiro Tsuchihashi
''Mission impossible: Buy price fails to signal information''
( 2019, Vol. 39 No.1 )
According to the well-known linkage principle, a seller benefits from revealing information relevant to bidders' payoffs in auctions. For this purpose, the seller needs a signaling device to credibly transmit her private information to bidders. One natural candidate for such a device is a buy price. In this paper, I investigate the theoretical possibility that the buy price may credibly signal the seller's private information in second-price auctions. However, I find that the buy price cannot serve as a signaling device. There exists no separating equilibrium such that a buy price signals the seller's private information.
Keywords: buy price; signaling; second price auction
JEL: D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : Jan 28 2019 Manuscript Accepted : Mar 16 2019

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