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Reserve prices in auctions as reference points

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  • Stephanie Rosenkranz
  • Patrick W. Schmitz

Abstract

We 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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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse24_2005.pdf
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse24_2005.

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Length: 24
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:bon:bonedp:bgse24_2005

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Keywords: Auction theory; reference-dependent utility; reserve prices;

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References

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Citations

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Cited by:
  1. Basov Suren & Danilkina Svetlana, 2007. "Auctions with Opportunistic Experts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-11, November.
  2. Ricardo Gonçalves, 2013. "Empirical Evidence on the Impact of Reserve Prices in E nglish Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 202-242, 03.
  3. Sibly, Hugh, 2007. "Loss aversion, price and quality," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(5), pages 771-788, October.
  4. Dickson, Alex & Jennings, Colin & Koop, Gary, 2013. "Domestic Violence and Football in Glasgow: Are Reference Points Relevant?," SIRE Discussion Papers 2013-33, Scottish Institute for Research in Economics (SIRE).
  5. Englmaier, Florian & Schmöller, Arno, 2010. "Determinants and Effects of Reserve Prices in Hattrick Auctions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 326, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Jannett Highfill & Kevin O’Brien, 2009. "The Effect of Alternative e-Prices on eBay Book Auctions," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(4), pages 383-395, December.
  7. Roider, Andreas & Schmitz, Patrick W., 2007. "Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices," CEPR Discussion Papers 6476, C.E.P.R. Discussion Papers.
  8. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.
  9. Ángel Hernando-Veciana, 2010. "Comment on "Auctions with a buy price: The case of reference-dependent preferences"," Economics Working Papers we1019, Universidad Carlos III, Departamento de Economía.
  10. Zhou, Jidong, 2008. "Reference Dependence and Market Competition," MPRA Paper 9370, University Library of Munich, Germany.
  11. Syngjoo Choi & Lars Nesheim & Imran Rasul, 2010. "Reserve price effects in auctions: estimates from multiple RD designs," CeMMAP working papers CWP30/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  12. Trautmann, Stefan T. & Traxler, Christian, 2010. "Reserve prices as reference points - Evidence from auctions for football players at Hattrick.org," Journal of Economic Psychology, Elsevier, vol. 31(2), pages 230-240, April.
  13. Peitz, Martin & Waldfogel, Joel, 2012. "The Oxford Handbook of the Digital Economy," OUP Catalogue, Oxford University Press, number 9780195397840.
  14. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer, vol. 37(1), pages 3-42, August.
  15. Nicholas Shunda, 2009. "Auctioning with Aspirations: Keep Them Low (Enough)," Alumni working papers 2009-02, University of Connecticut, Department of Economics.
  16. Nicholas Shunda, 2007. "Auctions with a Buy Price: The Case of Reference-Dependent Preferences," Working papers 2007-42, University of Connecticut, Department of Economics.
  17. Florian Englmaier & Arno Schmöller, 2008. "Reserve Price Formation in Online Auctions," CESifo Working Paper Series 2374, CESifo Group Munich.
  18. Tim Hoppe & Abdolkarim Sadrieh, 2007. "An Experimental Assessment of Confederate Reserve Price Bids in Online Auction," FEMM Working Papers 07011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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