Sequential search auctions with a deadline.

Abstract

A seller wants to allocate an indivisible product among a number of potential buyers by a finite deadline, and to contact a buyer, she needs to pay a positive search cost. We investigate the optimal mechanism for this problem, and show that its outcomes can be implemented by a sequence of second-price auctions. The optimal sequential search auction is characterized by declining reserve prices and increasing search intensities (sample sizes) over time, and the monotonicity results are robust in both cases of short-lived and long-lived bidders. When bidders are long-lived the optimal reserve prices demonstrate a one-step-ahead property, and our results generalize the well-known results in sequential search problems (Weitzman, 1979). We further examine an efficient search mechanism, and show that it is featured by both lower reserve prices and search intensities than an optimal search mechanism.