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Field experiments on the effects of reserve prices in auctions: more Magic on the Internet

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  • David H. Reiley

Abstract

I present experimental evidence on the effects of minimum bids in first-price, sealed-bid auctions. The auction experiments manipulated the minimum bids in a preexisting market on the Internet for collectible trading cards from the game Magic: the Gathering. I examine a number of outcomes, including the number of participating bidders, the probability of sale, the levels of individual bids, and the auctioneer’s revenues. The benchmark theoretical model is one with symmetric, riskneutral bidders with independent private values. The results verify a number of the predictions concerning equilibrium bidding. Many bidders behave strategically, anticipating the effects of the reserve price on others' bids.

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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 1 (03)
Pages: 195-211

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Handle: RePEc:bla:randje:v:37:y:2006:i:1:p:195-211

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  1. Levin, Dan & Smith, James L, 1996. "Optimal Reservation Prices in Auctions," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(438), pages 1271-83, September.
  2. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(3), pages 23-36, Summer.
  3. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1063-1080, December.
  4. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, Elsevier, vol. 78(2), pages 333-357, June.
  5. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(3), pages 145-162, Summer.
  6. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 865-83, December.
  7. Hendricks, K. & Paarsch, H.J., 1993. "A Survey of Recent Empirical Work Concerning Auctions," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9309, University of Western Ontario, Department of Economics.
  8. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(3), pages 227-52, September.
  9. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 923-55, December.
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Cited by:
  1. Englmaier, Florian & Schmöller, Arno, 2010. "Determinants and Effects of Reserve Prices in Hattrick Auctions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 326, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics, University of Munich, Department of Economics 11175, University of Munich, Department of Economics.
  3. Drichoutis, Andreas C. & Lazaridis, Panagiotis & Nayga Jr., Rodolfo M., 2008. "The role of reference prices in experimental auctions," Economics Letters, Elsevier, Elsevier, vol. 99(3), pages 446-448, June.
  4. Gary E Bolton & Axel Ockenfels, 2007. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," Working Paper Series in Economics, University of Cologne, Department of Economics 36, University of Cologne, Department of Economics, revised 24 Feb 2011.
  5. Burtraw, Dallas & Palmer, Karen, 2006. "Summary of the Workshop to Support Implementing the Minimum 25 Percent Public Benefit Allocation in the Regional Greenhouse Gas Initiative," Discussion Papers, Resources For the Future dp-06-45, Resources For the Future.
  6. Christopher Boyer & B. Brorsen & Tong Zhang, 2014. "Common-value auction versus posted-price selling: an agent-based model approach," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 9(1), pages 129-149, April.
  7. Yan Chen & Peter Katuscak & Emre Ozdenoren, 2005. "Sealed Bid Auctions with Ambiguity: An Experimental Study," CERGE-EI Working Papers wp269, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Jeffrey Livingston, 2010. "The effect of id verification in online auctions: Evidence from a field experiment," Natural Field Experiments, The Field Experiments Website 00273, The Field Experiments Website.

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