Auctions versus Posted Prices When Buyers Have Common Values

Our objective is to determine if a first-price auction or a posted-price market provides a seller with the larger expected revenue when buyers have a common value for the item being sold. An agent-based, posted-price market and an agent-based, first-price common-value auction with a reserve price are developed to compare these selling methods. When the seller cannot impose a reserve price in the auction, the seller is better off selling the item in a posted-price market. However, when the seller can impose a reserve price in the auction, we find that the seller is mostly indifferent between these selling methods under several different scenarios, although the auction is preferred when seller uncertainty is high relative to buyer uncertainty. JEL classification: C73, D44