A Note on Auctions with Endogenous Participation
AbstractIn this paper, we study an auction where bidders only know the number of potential applicants. After seeing their values for the object, bidders decide whether or not to enter the auction. Players may not want to enter the auction since they have to pay participation costs. We characterize the optimal bidding strategies for both first- and second- price sealed-bid auction when participation is endogenous. We show that only bidders with values greater than a certain cut-off point will bid in these auctions. In this context, both auctions generate the same expected revenue. We also show that, contrarily to the predictions of the fixed-$n$ literature, the seller's expected revenue may not increase when the number of potential participants increases. In addition, we show that it is optimal for the seller to charge an entry fee, which contrast greatly with results from the existing literature on auctions with entry.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 9610003.
Length: 16 pages
Date of creation: 22 Oct 1996
Date of revision: 31 Oct 1996
Note: Type of Document - latex file; prepared on textures; to print on postscript; pages: 16
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auction; endogenous participation;
Other versions of this item:
- D1 - Microeconomics - - Household Behavior
- D2 - Microeconomics - - Production and Organizations
- D3 - Microeconomics - - Distribution
- D4 - Microeconomics - - Market Structure and Pricing
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447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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