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Advertising a second-price auction

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  • Fang, Rui
  • Li, Xiaohu

Abstract

This study examines a symmetric private-value second-price auction model in which the seller solicits bidders at a cost, sets a reserve price, and receives a payoff which is a convex combination of revenue and welfare. The bidder’s valuations are drawn from a distribution with a decreasing hazard rate and non-decreasing virtual valuations. We find that at equilibrium the seller adopts an advertising policy which minimizes the uncertainty over the number of participants, and sets a reserve price which only depends on the distribution of valuations and the weight on revenue in the objective function. A welfare-maximizing seller is shown to advertise more than a revenue-maximizing seller, and a ceteris paribus increase in the advertising level is proved to increase the expected winner’s rent.

Suggested Citation

  • Fang, Rui & Li, Xiaohu, 2015. "Advertising a second-price auction," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 246-252.
    • Handle: RePEc:eee:mateco:v:61:y:2015:i:c:p:246-252
    DOI: 10.1016/j.jmateco.2015.04.003
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    References listed on IDEAS

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    1. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    2. Szech, Nora, 2011. "Optimal advertising of auctions," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2596-2607.
    3. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    4. Adamidis, K. & Loukas, S., 1998. "A lifetime distribution with decreasing failure rate," Statistics & Probability Letters, Elsevier, vol. 39(1), pages 35-42, July.
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    Cited by:

    1. Li, Chen & Li, Xiaohu, 2019. "Hazard rate and reversed hazard rate orders on extremes of heterogeneous and dependent random variables," Statistics & Probability Letters, Elsevier, vol. 146(C), pages 104-111.

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