Article Abstract:
A model that compares the performance of real estate auctions to that of negotiated sales and that addresses unexpected shocks in the number of prospective buyers is developed. Based on this model, it is observed that auction prices, except for those in hot markets, will tend to be lower than prices for houses that undergo negotiated sales. The auction discount decreases, however, once the housing market changes for the better and available units drop in the short term. Auction of houses with lower-range mismatch costs will predictably generate a smaller discount. Because more homogenous units have smaller relative mismatch, their discount will naturally be lower. Finally, comparison of auction prices with market prices for high-cost sellers will raise the auction discount.
User Contributions:
Comment about this article or add new information about this topic:
Article Abstract:
Pooled or right-to-choose auctions involve combining all items to be sold in a single lot and giving the highest bidder the right to select an item from the pool. After the first round of bidding, the process is repeated until all the items in the pool are sold. One advantage of employing this form of auction is its lower variance in revenue, which decreases the risk of buyer default for sellers. On the part of the bidders, expected gain may be maximized by developing a bidding strategy based on their personal valuation and the probability that certain items will be chosen by rival bidders. A pooled auction of similar two-bedroom condominium units is analyzed.
User Contributions:
Comment about this article or add new information about this topic:
Article Abstract:
The situation where the negotiation of input prices is done by industry suppliers, rather than regulators, is critically examined. In the present economic environment, consumer surplus is difficult to achieve due to retail price regulation, competition among buyers and product heterogeneity.
User Contributions:
Comment about this article or add new information about this topic: