Question
How is a second-price (for single item) auction anything other than a subsidy from the seller to the buyer?
Answer
If you mean the sealed-bid second-price auction (Vickrey), I believe it has some optimality properties of theoretical interest.
If you mean English or generalized second-price auctions, I have no idea. I believe Google AdWords is a second price auction, but am not entirely sure what its information constraints are.
Your speculations about why the seller would want it is a good one. I think the simple answer is that in a seller's market, they don't. That's why second price auctions are quite rare in practice.
But possibly in buyers' markets, the perception of "true value is dominant" (true of Vickrey, not sure if it is generally true) helps the auction clear the market? I know that as a seller, I'd rather set a market-clearing price rather than a profit maximizing price.
I don't think buyer's remorse subsidy has anything to do with it. That is a rational motive in iterated game situations where the seller has an incentive to price the first transaction fairly or below-price (loss leader) to get future transactions (i.e. it would be DCF-NPV optimal in some sense). The right way to model this would be to use prisoner's dilemma style discounting techniques.
But your instinct is right: remorse has a measurable cost in terms of retention risk over repeated transactions, so it must be modeled properly in those situations. In one-off deals, it is irrelevant.
If you mean English or generalized second-price auctions, I have no idea. I believe Google AdWords is a second price auction, but am not entirely sure what its information constraints are.
Your speculations about why the seller would want it is a good one. I think the simple answer is that in a seller's market, they don't. That's why second price auctions are quite rare in practice.
But possibly in buyers' markets, the perception of "true value is dominant" (true of Vickrey, not sure if it is generally true) helps the auction clear the market? I know that as a seller, I'd rather set a market-clearing price rather than a profit maximizing price.
I don't think buyer's remorse subsidy has anything to do with it. That is a rational motive in iterated game situations where the seller has an incentive to price the first transaction fairly or below-price (loss leader) to get future transactions (i.e. it would be DCF-NPV optimal in some sense). The right way to model this would be to use prisoner's dilemma style discounting techniques.
But your instinct is right: remorse has a measurable cost in terms of retention risk over repeated transactions, so it must be modeled properly in those situations. In one-off deals, it is irrelevant.