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Reserve Price (In)equivalence: Shill Bidding to Lower the Reserve Price

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  • Seungwon (Eugene) Jeong

Abstract

The optimal reserve price of the third‐price auction with two bidders differs from that with more than two bidders, whereas the optimal reserve price of the second‐price auction is the same regardless of the number of bidders. We generalize this result to the kth‐price multiunit auctions with single‐unit demand, and introduce a new kind of shill‐bidding incentive of bidders in order to lower the reserve price. Alongside budget constraints caused by overbidding, this may explain why third‐price auctions are rare in practice.

Suggested Citation

  • Seungwon (Eugene) Jeong, 2025. "Reserve Price (In)equivalence: Shill Bidding to Lower the Reserve Price," Bulletin of Economic Research, Wiley Blackwell, vol. 77(2), pages 121-127, April.
    • Handle: RePEc:bla:buecrs:v:77:y:2025:i:2:p:121-127
    DOI: 10.1111/boer.12480
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    References listed on IDEAS

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    1. Ken Binmore & Paul Klemperer, 2002. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economic Journal, Royal Economic Society, vol. 112(478), pages 74-96, March.
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    4. Seungwon (Eugene) Jeong, 2020. "On the core of auctions with externalities: stability and fairness," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1093-1107, December.
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