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 is increasing in 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.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse24_2005.
Date of creation: Sep 2005
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Auction theory; reference-dependent utility; reserve prices;
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.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-MIC-2005-12-14 (Microeconomics)
- NEP-UPT-2005-12-14 (Utility Models & Prospect Theory)
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