Commitment in First-Price Auctions

We study the role of commitment in a first-price auction environment. We devise a simple two-stage model in which bidders first submit an initial offer that the auctioneer can observe and then make a counteroffer. There is no commitment on the auctioneer's side to accept an offer as is or even to choose the lowest bidder. We compare this setting to a standard first-price auction both theoretically and experimentally. While theory suggests that the offers and the auctioneer's revenue should be higher in a standard first-price auction compared to the first-price auction with renegotiation, we cannot confirm these hypotheses in the experiment.

Gillen, Philippe (2019), Commitment in First-Price Auctions, ZEW Discussion Paper Nr. 19-062, Mannheim.