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How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions

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  • R. Preston McAfee
  • Daniel C. Quan
  • Daniel R. Vincent

Abstract

In a general auction model with affiliated signals, common components to valuations and endogenous entry, we compute the equilibrium bidding strategies and outcomes, and derive a lower bound on the optimal reserve price. This lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods. We illustrate how to compute the lower bound using data from real estate auctions.

Suggested Citation

  • R. Preston McAfee & Daniel C. Quan & Daniel R. Vincent, 2002. "How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 391-416, December.
    • Handle: RePEc:bla:jindec:v:50:y:2002:i:4:p:391-416
    DOI: 10.1111/1467-6451.00183
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