Unobserved Heterogeneity and Reserve Prices in Auctions
AbstractThis study addresses the need to account for unobserved heterogeneity in auctions to improve our estimates of the distribution of bidder values. The method uses reserve prices to allow the distribution of bidders' private information to depend on the realization of the unobserved heterogeneity. The identifying assumption is that reserve prices are monotonic in the realization of unobserved heterogeneity and sellers are not required to set reserve prices optimally. The model can be estimated using only transaction prices. The paper proposes an estimation method and derives the asymptotic distribution of the proposed estimator. Working with data on used car auctions, the paper shows that controlling for unobserved heterogeneity aects estimates of the distribution of bidder values and impacts predicted outcomes dramatically.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-80.
Date of creation: 2009
Date of revision:
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Auctions; Unobserved Heterogeneity;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
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- Yingyao Hu & David McAdams & Matthew Shum, 2009.
"Nonparametric identification of auction models with non-separable unobserved heterogeneity,"
CeMMAP working papers
CWP15/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Yingyao Hu & David McAdams & Matthew Shum, 2009. "Nonparametric Identification of Auction Models with Non-Separable Unobserved Heterogeneity," Economics Working Paper Archive 553, The Johns Hopkins University,Department of Economics.
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