Reserve Prices in Auctions as Reference Points
AbstractWe consider second-price and first-price auctions in the symmetric independent private values framework. We modify the standard model by the assumption that the bidders have reference-based utility, where a publicly announced reserve price has some influence on the reference point. It turns out that the seller's optimal reserve price increases with the number of bidders. Also in contrast to the standard model, we find that secret reserve prices can outperform public reserve prices, and that setting the optimal reserve price can be more valuable for the seller than attracting additional bidders. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 117 (2007)
Issue (Month): 520 (04)
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Other versions of this item:
- Rosenkranz, Stephanie & Schmitz, Patrick W., 2004. "Reserve Prices in Auctions as Reference Points," CEPR Discussion Papers 4264, C.E.P.R. Discussion Papers.
- Stephanie Rosenkranz & Patrick W. Schmit, 2005. "Reserve prices in auctions as reference points," Working Papers 05-14, Utrecht School of Economics.
- Stephanie Rosenkranz & Patrick W. Schmitz, 2005. "Reserve prices in auctions as reference points," Bonn Econ Discussion Papers bgse24_2005, University of Bonn, Germany.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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