Selling to Advised Buyers

Abstract

© 2019 American Economic Association. All Rights Reserved. In many cases, buyers are not informed about their valuations and rely on experts, who are informed but biased for overbidding. We study auction design when selling to such "advised buyers." We show that a canonical dynamic auction, the English auction, has a natural equilibrium that outperforms standard static auctions in expected revenues and allocative efficiency. The ability to communicate as the auction proceeds allows for more informative communication and gives advisors the ability to persuade buyers into overbidding. The same outcome is the unique equilibrium of the English auction when bidders can commit to contracts with their advisors.