Rating Bidders in Sequential Auctions

(with Elia Sartori) 

Abstract

Motivated by the market for online display advertising, we consider a seller who sells two identical objects through sequential second-price auctions with reserve prices. Bidders’ values follow independent and persistent stochastic processes. The seller observes the transaction price in the early auction and uses this information to set the reserve in the late one. We show that outcomes that convey more optimistic information on bidders’ values may lead the seller to set a lower reserve price in the late auction. Because bids reveal information, bidders in the early auction (i) are less likely to participate and (ii) shade their bids when they do participate. Decreasing persistence in bidders’ values reduces participation, but increases bid shading. Compared to a static auction, in the early auction the seller would prefer to (i) set a lower reserve price to increase current revenue but (ii) set a higher reserve price for information acquisition. Overall, information increases efficiency but reduces the seller’s revenue. Despite increasing potential surplus, decreasing persistence may hurt the seller.