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Unobserved heterogeneity and reserve prices in auctions

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  • James W. Roberts

Abstract

type="main"> This article shows how reserve prices can be used to control for unobserved object heterogeneity to identify and estimate the distribution of bidder values in auctions. Reserve prices are assumed to be monotonic in the realization of unobserved heterogeneity, but not necessarily set optimally. The model is estimated using transaction prices from a used car auction platform to show that the platform enables sellers to capture a large fraction of the potential value from selling their vehicle. Individual sellers benefit mostly from access to a large set of buyers, but the magnitude depends on accounting for unobserved heterogeneity.

Suggested Citation

  • James W. Roberts, 2013. "Unobserved heterogeneity and reserve prices in auctions," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 712-732, December.
    • Handle: RePEc:bla:randje:v:44:y:2013:i:4:p:712-732
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12038
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