Simultaneous Vs. Sequential Sales, Intensity of Competition and Uncertainty

Under what circumstances will a seller be better of selling his inventory sequentially, rather than selling them all in a single auction? If buyers come sequentially, there is an obvious reason to sell items sequentially. However, we show that even (1) when all buyers are present at the beginning of the auction, (2) when both the seller and buyers are impatient, a sequential sale can still be more profitable for the seller as it stimulates competition among forward-looking bidders. This result depends on: (1) the "intensity of competition", which is characterized by the number of items available relative to the number of buyers; and (2) the discount factor of the auctioneer and bidders; and (3) the uncertainty among bidders about how many items available for sale. The result is then extended to a T-period setting. When bidders are strategic players who can predict the optimal strategy of the seller, we find that the dynamic equilibrium structure of this game is quite different from that in a typical optimal stopping problem.