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Unobserved Heterogeneity and Reserve Prices in Auctions

  • James W. Roberts
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    This study addresses the need to account for unobserved heterogeneity in auctions to improve our estimates of the distribution of bidder values. The method uses reserve prices to allow the distribution of bidders' private information to depend on the realization of the unobserved heterogeneity. The identifying assumption is that reserve prices are monotonic in the realization of unobserved heterogeneity and sellers are not required to set reserve prices optimally. The model can be estimated using only transaction prices. The paper proposes an estimation method and derives the asymptotic distribution of the proposed estimator. Working with data on used car auctions, the paper shows that controlling for unobserved heterogeneity a ects estimates of the distribution of bidder values and impacts predicted outcomes dramatically.

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    Paper provided by Duke University, Department of Economics in its series Working Papers with number 10-80.

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    Length: 54
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:duk:dukeec:10-80
    Contact details of provider: Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
    Phone: (919) 660-1800
    Fax: (919) 684-8974
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