Identical items are sold at English auction by one of two methods. One is to auction single items, one at a time. The other is to hold an initial English auction in which the high bidder has the right to buy the lot or a portion of it (at the price he or she bids per unit). If the bidder purchases only some of the items, the remainder is immediately re-auctioned under the same ground rules.
a. Suppose seven identical items are auctioned one by one. What complication does this present for bidders? Which items, the first or the last, would you expect to sell for the lowest prices on average?
b. Suppose the winning bidder can buy all or some of the seven items and any leftovers are re-auctioned. In what sense does this procedure resemble a Dutch auction? How might this affect buyers’ bidding strategies?