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Reserve Prices as Signals

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  • Onur A. Koska
  • Frank Stähler

Abstract

This paper discusses the role of secret versus public reserve prices when bidders’ valuations depend positively on the seller’s private signal. A public reserve price is announced before the auction starts, and a secret reserve price is disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payo˙-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a secret (public) reserve price design qualifies as an equilibrium if the distortion is large (small).

Suggested Citation

  • Onur A. Koska & Frank Stähler, 2022. "Reserve Prices as Signals," CESifo Working Paper Series 9581, CESifo.
    • Handle: RePEc:ces:ceswps:_9581
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    auctions; interdependent values; optimal reserve prices; rational signaling;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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