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Updating the Reserve Price in Common Value Auctions

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  • R. Preston McAfee
  • Daniel Vincent

Abstract

We consider a common value auction model with bidder participation determined jointly by nature and by bidder optimization. In this framework, an increase in the reserve price as two effects: it deters marginal bidders and it deters bidders from becoming informed. We then derive a test statistic for establishing when it is optimal to raise the reserve price. This statistic is independent of the distribution of valuations. We then apply the analysis to U.S. offshore oil sales and find evidence that the reserve price is dramatically too low.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 977.

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Date of creation: Jan 1992
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Handle: RePEc:nwu:cmsems:977

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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Web page: http://www.kellogg.northwestern.edu/research/math/
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Cited by:
  1. Jacob K. Goeree & Theo Offerman, 2002. "The Amsterdam Auction," Microeconomics 0205002, EconWPA.
  2. Sudip Gupta, 2004. "Endogenous Asymmetry and Entry in Sequential Multi-Unit Auctions: Identification and Estimation," Econometric Society 2004 North American Summer Meetings 566, Econometric Society.
  3. Daniel J. Henderson & John A. List & Daniel L. Millimet & Christopher F. Parmeter & Michael K. Price, 2011. "Empirical Implementation of Nonparametric First-Price Auction Models," NBER Working Papers 17095, National Bureau of Economic Research, Inc.
  4. Kosmopoulou, Georgia & De Silva, Dakshina G., 2007. "The effect of shill bidding upon prices: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 291-313, April.
  5. Robert H. Porter, 1992. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," NBER Working Papers 4185, National Bureau of Economic Research, Inc.
  6. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
  7. Kenneth Hendricks & Joris Pinkse & Robert H. Porter, 2003. "Empirical Implications of Equilibrium Bidding in First--Price, Symmetric, Common Value Auctions," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 115-145, January.
  8. Gerard Marty & Raphaele Preget, 2007. "A Socio-economic Analysis of French Public Timber Sales," Working Papers - Cahiers du LEF 2007-03, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
  9. Christopher Boyer & B. Brorsen, 2014. "Implications of a Reserve Price in an Agent-Based Common-Value Auction," Computational Economics, Society for Computational Economics, vol. 43(1), pages 33-51, January.
  10. Haile,P.A. & Tamer,E.T., 2000. "Inference with an incomplete model of English auctions," Working papers 18, Wisconsin Madison - Social Systems.
  11. Boeheim, Rene & Zulehner, Christine, 1996. "Auctions - A Survey," Economics Series 39, Institute for Advanced Studies.
  12. Luciano De Castro, 2010. "Affiliation, Equilibrium Existence and Revenue Ranking of Auctions," Discussion Papers 1530, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Alexander S. Gorbenko & Andrey Malenko, 2011. "Competition among Sellers in Securities Auctions," American Economic Review, American Economic Association, vol. 101(5), pages 1806-41, August.

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