Alternative Strategies for Selling Land to the Highest Bidder

Abstract

In this paper the properties of several models of sequential bidding behavior are evaluated. In particular, the returns to a seller who maximizes the probability of selling to the highest bidder are compared with the returns of a rank minimization strategy which is more conservative. The comparison reveals that the rank minimization strategy will generally lead to shorter waiting times, higher expected selling prices, and lower probabilities of receiving the worst bids. Both of these objectives assume that sellers have no initial information pertaining to the distribution of bid prices. This is in sharp contrast to the more usual assumption of complete information about the parameters of the distribution. The losses associated with not having a priori information on the number of bidders are also evaluated. Under such circumstances, sellers may adopt more conservative strategies, with the consequent result of shorter waiting times and lower expected prices.