Hybrid value and sequential auctions

This dissertation investigates theoretical issues of hybrid auction and sequential auction as a signaling game.Chapter I gives an extensive review on the important results obtained in the field of auction in the past thirty years, with particular emphasis on recent and current empirical research.Chapter II develops around the theme of how to auction off a hybrid object, one composed of two parts, a private component and a common component.Section II.2 analyses a first-price auction model of a hybrid object. Our major finding is that under certain conditions, a fully separating equilibrium exists, in which the bids submitted by bidders reveal the kind of information they privately possess about the common component. However this information aggregation is achieved at the cost of allocative efficiency. We therefore give a formula to evaluate the severity of inefficiency.Section II.3 studies bidding behavior in an English auction. A bidding program based on Bayesian updating is developed and a simulation produces drastic herding behavior and extreme market boom and bust cycle. A comparison is made between our findings and some current research on "almost common" value models.Chapter III analyses a housing model. Our focus is on how the amount of time the house stays on the market shapes buyer's beliefs about its quality and how the seller can design a selling scheme to use time on the market to take advantage of various information regimes. Also built on Taylor (1998), this chapter uses a second-price auction only as a convenient vehicle to demonstrate price formation. We further extend the model to cover the case of low-quality house instead of zero-quality house. This enrichment of the model produces many interesting results not observed in the original zero quality model. Under different information regimes, market price may unambiguously signal the quality of the house, or it may completely fail to do so. Or market price may fail to signal quality in the beginning, but as time wears on, it may eventually reflect quality.