original papers : Auctions with endogenous participation
AbstractWe study endogenous-participation auctions where bidders only know the number of potential participants. After seeing their values for the object, potential participants decide whether or not to enter the auction. They may not want to enter the auction since they have to pay participation costs. We characterize equilibrium bidding strategies and entry decisions for both first- and second-price sealed-bid auctions when participation is endogenous. We show that there is a pure strategy entry equilibrium where only bidders with values greater than a certain cut-off point actually bid. In this context, both types of auctions generate the same expected revenue. We also show that, contrary to the predictions of the fixed number of bidders literature, the seller's expected revenue may decrease when the number of potential participants increases. In addition, we show that it is optimal for the seller to charge an entry fee, which contrasts with results from the existing literature on auctions with entry. As in the fixed-n literature, we show that first-price auctions generate more expected revenue than second-price auctions when buyers are risk-averse. Finally, we characterize the optimal auction - the auction that maximizes the seller's expected revenue - by using a direct revelation mechanism. The optimal auction involves a reserve price larger than the optimal reserve price in the fixed-n literature. The winner's payment is the second highest bid less the participation cost and losers receive a subsidy equal to the participation cost.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Review of Economic Design.
Volume (Year): 5 (2000)
Issue (Month): 1 ()
Note: Received: 17 August 1998 / 21 September 1999
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/10058/index.htm
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- GINSBURGH, Victor & LEGROS, Patrick & SAHUGUET, Nicolas, .
"On the incidence of commissions in auction markets,"
CORE Discussion Papers RP
-2253, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Ginsburgh, Victor & Legros, Patrick & Sahuguet, Nicolas, 2010. "On the incidence of commissions in auction markets," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 639-644, November.
- Arozamena, Leandro & Weinschelbaum, Federico, 2011.
"On favoritism in auctions with entry,"
Elsevier, vol. 110(3), pages 265-267, March.
- Leandro Arozamena & Federico Weinschelbaum, 2010. "On Favoritism in Auctions with Entry," Working Papers 103, Universidad de San Andres, Departamento de Economia, revised May 2010.
- Leandro Arozamena & Federico Weinschelbaum, 2010. "On favoritism in auctions with entry," Department of Economics Working Papers 2010-072, Universidad Torcuato Di Tella.
- Estache, Antonio & Iimi, Atsushi, 2009.
"(UN)Bundling infrastructure procurement : evidence from water supply and sewage projects,"
Policy Research Working Paper Series
4854, The World Bank.
- Estache, Antonio & Iimi, Atsushi, 2011. "(Un)bundling infrastructure procurement: Evidence from water supply and sewage projects," Utilities Policy, Elsevier, vol. 19(2), pages 104-114, June.
- Antonio Estache & A. Iimi, 2009. "(Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects," Working Papers ECARES 2009_007, ULB -- Universite Libre de Bruxelles.
- Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer, vol. 43(3), pages 243-261, November.
- Radosveta Ivanova-Stenzel & Timothy Salmon, 2009.
"The High/Low Divide: Self-Selection by Values in Auction Choice,"
wp2009_06_02, Department of Economics, Florida State University.
- Ivanova-Stenzel, Radosveta & Salmon, Timothy C., 2011. "The high/low divide: Self-selection by values in auction choice," Games and Economic Behavior, Elsevier, vol. 73(1), pages 200-214, September.
- Ivanova-Stenzel, Radosveta & Salmon, Timothy C., 2010. "The High/Low Divide: Self- Selection by Values in Auction Choice," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 295, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Gal, Shmuel & Landsberger, Michael & Nemirovski, Arkadi, 2007. "Participation in auctions," Games and Economic Behavior, Elsevier, vol. 60(1), pages 75-103, July.
- Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2010.
"Endogenous participation in charity auctions,"
Journal of Public Economics,
Elsevier, vol. 94(11-12), pages 921-935, December.
- Vagstad, Steinar, 2007.
"Should auctioneers supply early information for prospective bidders?,"
International Journal of Industrial Organization,
Elsevier, vol. 25(3), pages 597-614, June.
- Vagstad, S., 2001. "Should Auctioneers Supply Early Information for Prospective Bidders?," Norway; Department of Economics, University of Bergen 0701, Department of Economics, University of Bergen.
- Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2011.
"Jumping and sniping at the silents: Does it matter for charities?,"
Journal of Public Economics,
Elsevier, vol. 95(5-6), pages 395-402, June.
- Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2011. "Jumping and sniping at the silents: Does it matter for charities?," Journal of Public Economics, Elsevier, vol. 95(5), pages 395-402.
- Cao, Xiaoyong & Tian, Guoqiang, 2010. "Equilibria in first price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 258-273, July.
- Miralles, Antonio, 2008. "Intuitive and noncompetitive equilibria in weakly efficient auctions with entry costs," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 448-455, November.
- Ilya Morozov & Elena Podkolzina, 2013. "Collusion detection in procurement auctions," HSE Working papers WP BRP 25/EC/2013, National Research University Higher School of Economics.
- Di Gaetano, Luigi, 2011. "A model of descending auction with hidden starting price and endogenous price decrease," MPRA Paper 35773, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.