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Rational Reserve Pricing in Sequential Auctions

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  • Edmund Mantell

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Abstract

A durable asset is sold in a sealed-bid first price auction. The seller sets an undisclosed reservation price. The seller has no prior information respecting the private valuations of the bidders. If no bid exceeds the reservation price, the asset is sequentially auctioned until it is sold. A rational seller will design an intertemporal series of reservation prices that maximize the discounted value of the transaction price. To accomplish this, the seller uses the history of unsuccessful bids to estimate the probability density functions governing the maximum bids at each hypothetical future auction date. Copyright International Atlantic Economic Society 2013

Suggested Citation

  • Edmund Mantell, 2013. "Rational Reserve Pricing in Sequential Auctions," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(2), pages 149-159, June.
  • Handle: RePEc:kap:atlecj:v:41:y:2013:i:2:p:149-159 DOI: 10.1007/s11293-012-9345-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Sequential auctions; Probabilities; Rationality; Risk assessment; D44; D82; D84;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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