DP6503 On Seller Estimates and Buyer Returns

Author(s): Alex Gershkov, Flavio Toxvaerd
Publication Date: October 2007
Keyword(s): Auctions, Buyer credulity, Information disclosure, Seller manipulation
JEL(s): D44, D82, G12, G14
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6503

This paper revisits recent empirical research on buyer credulity in arts auctions and auctions for assets in general. We show that elementary results in auction theory can fully account for some stylized facts on asset returns that have been held to suggest that sellers of assets can exploit buyers by providing biased estimates of asset values. We argue that, rather than showing that buyers are credulous, the existing evidence can serve as an indirect test of the rationality assumptions underlying auction theory.