Auctions with heterogeneous entry costs
AbstractWe 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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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we061806.
Date of creation: Jan 2006
Date of revision:
Standard auctions; Endogenous entry; Heterogenous entry costs; Public reserve; Secret reserve;
Other versions of this item:
- Moreno, Diego & Wooders, John, . "Auctions with heterogeneous entry costs," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2485, Universidad Carlos III de Madrid.
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