Time is Money: The Effect of Clock Speed on Seller's Revenue in Dutch Auctions

Abstract

This study examines the role of timing in auctions under the premise that time is a valuable resource. When one object is for sale, Dutch and first-price sealed bid auctions are strategically equivalent in standard models, and therefore, they should yield the same revenue for the auctioneer. We study Dutch and first-price sealed bid auctions in the laboratory, with a specific emphasis on the speed of the clock in the Dutch auction. At fast clock speeds revenue in the Dutch auction is significantly lower than the sealed bid auction. When the clock is sufficiently slow, however, revenue in the Dutch auction is greater than the revenue in the sealed bid auction. We develop and test a simple model of auctions with impatient bidders that helps to reconcile prior findings in both the laboratory and the field.