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Semiparametric Estimation of the Optimal Reserve Price in First-Price Auctions

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  • Li, Tong
  • Perrigne, Isabelle
  • Vuong, Quang

Abstract

The optimal reserve price in the independent private value paradigm is generally expressed as a functional of the latent distribution of private signals, which is by nature unobserved. This feature has limited the implementation of the optimal reserve price in practice. In this article, we consider first-price auctions within the general affiliated private values paradigm. We show that the seller's expected profit can be written as a functional of the observed bid distribution. We propose a semiparametric extremum estimator for estimating consistently the optimal reserve price from observed bids. As an illustration, we consider the Outer Continental Shelf (OCS) wildcat auctions.

Suggested Citation

  • Li, Tong & Perrigne, Isabelle & Vuong, Quang, 2003. "Semiparametric Estimation of the Optimal Reserve Price in First-Price Auctions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 53-64, January.
  • Handle: RePEc:bes:jnlbes:v:21:y:2003:i:1:p:53-64
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    Citations

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    Cited by:

    1. Dominic Coey & Bradley Larsen & Kane Sweeney, 2014. "The Bidder Exclusion Effect," NBER Working Papers 20523, National Bureau of Economic Research, Inc.
    2. Marmer, Vadim & Shneyerov, Artyom, 2012. "Quantile-based nonparametric inference for first-price auctions," Journal of Econometrics, Elsevier, vol. 167(2), pages 345-357.
    3. Federico Zincenko, 2016. "Nonparametric Estimation of First-Price Auctions with Risk-Averse Bidders," Working Paper 5855, Department of Economics, University of Pittsburgh.
    4. Nathalie Gimenes, 2014. "Econometrics of Ascending Auctions by Quantile Regression," Working Papers, Department of Economics 2014_25, University of São Paulo (FEA-USP).
    5. Henderson, Daniel J. & List, John A. & Millimet, Daniel L. & Parmeter, Christopher F. & Price, Michael K., 2012. "Empirical implementation of nonparametric first-price auction models," Journal of Econometrics, Elsevier, vol. 168(1), pages 17-28.
    6. Hennessy, David A., 2006. "Multi-output firm under price uncertainty," Journal of Economics and Business, Elsevier, vol. 58(3), pages 181-201.
    7. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    8. Kim, Dong-Hyuk, 2013. "Optimal choice of a reserve price under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 587-602.
    9. Hickman Brent R. & Hubbard Timothy P. & Sağlam Yiğit, 2012. "Structural Econometric Methods in Auctions: A Guide to the Literature," Journal of Econometric Methods, De Gruyter, vol. 1(1), pages 67-106, August.
    10. Ma, Jun & Marmer, Vadim & Shneyerov, Artyom, 2016. "Inference for First-Price Auctions with Guerre, Perrigne, and Vuong's estimator," Microeconomics.ca working papers vadim_marmer-2016-4, Vancouver School of Economics, revised 17 Mar 2018.
    11. Simon Stevenson & James Young, 2015. "The Role of Undisclosed Reserves in English Open Outcry Auctions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 375-402, June.

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