We study the impact of public and secret reserve prices in auctions where buyers have independent private values and heterogeneous entry costs. We find that in a standard auction the optimal (i.e., revenue maximizing) public reserve price is typically above the seller's value. Moreover, an appropriate entry fee together with a public reserve price equal to the seller's value generates greater revenue. Secret reserve prices, however, differ across auction formats. In a second-price sealed-bid auction the secret reserve price is above the optimal public reserve price; hence there is less entry, a smaller probability of sale, and both the seller revenue and the bidders' utility are less than with an optimal public reserve price. In contrast, in a first-price sealed-bid auction the secret reserve is equal to the seller's value, and the bidders' expected utility (seller revenue) is greater (less) than with an optimal public reserve price.
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number
we061806.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
McAfee, R. Preston & McMillan, John, 1987.
"Auctions with entry,"
Economics Letters,
Elsevier, vol. 23(4), pages 343-347.
[Downloadable!] (restricted)
Riley, John G & Samuelson, William F, 1981.
"Optimal Auctions,"
American Economic Review,
American Economic Association, vol. 71(3), pages 381-92, June.
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