A Study On The Price Abnormalities In Sequential Auctions

Along with the continuous development of the economy, the auction way has been developing quickly. It has been applied to all aspects of economic life of the people. As flowers are easily rotten, so they especially suit for the auction way when large-scale transactions. Kunming International Flower Auction Trading Center (KIFA) is the typical case of China’s well working flower auction markets. So in this paper, we take KIFA as an example to research the phenomenon of the price anomaly in the sequential auction.In the literatures of sequential auction’s research, the basic model expects the auction prices are the same in every round. However, the expectation of the basic model isn’t supported by the empirical studies, which usually finds the auction prices decline. In this paper, we analyze the data on sequential Dutch auctions from the KIFA to examine whether the auction prices decline or not. From the empirical results, we find that there is a substantial price decline, and the magnitude of the auction price decline becomes small successively. In the paper, we use the theoretical model of McAfee and Vincent (1993) which applies to risk reverse bidders to find the reason of declining auction price. In addition, we take the effect of festival into account to find out whether the festival could strengthen the effect of risk aversion, further influence the magnitude of auction price decline.