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Selling Goods of Unknown Quality: Forward versus Spot Auctions

Hafalir, Isa E. and Yektas, Hadi (2010): Selling Goods of Unknown Quality: Forward versus Spot Auctions.

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Abstract

We consider an environment where the sale can take place so early that both the seller and the potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to put the good for sale before or after this uncertainty is resolved, , namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting revenues. We also consider the revenue implications of the insurance in forward auctions.

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