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 the reserve price (minimum bid) plays the role of the reference point. In contrast to the usual result, the seller’s optimal reserve price is increasing in the number of bidders. Even if an individual bidder perceives only a very small utility loss when they have to pay more than the reserve price, the impact on the optimal reserve price can be strong when there are many bidders.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4264.
Date of creation: Feb 2004
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Other versions of this item:
- Stephanie Rosenkranz & Patrick W. Schmit, 2005. "Reserve prices in auctions as reference points," Working Papers 05-14, Utrecht School of Economics.
- Stephanie Rosenkranz & Patrick W. Schmitz, 2005. "Reserve prices in auctions as reference points," Bonn Econ Discussion Papers bgse24_2005, University of Bonn, Germany.
- 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
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