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On the optimal entry fee and reserve price for auctions with selective entry: A comment on Gentry, Li, Lu (2017)

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  • Nicola Doni
  • Domenico Menicucci

Abstract

Gentry, Li, Lu (2017) (GLL henceforth) study an auction model with endogenous entry in which, before the entry decision, each bidder observes a private signal; a higher signal implies a better distribution for the bidder's valuation. GLL claim that the optimal reserve price is greater than the seller's value for the object on sale and that the optimal entry fee is positive. We prove that these claims are incorrect: The seller may want to subsidize entry to stimulate competition in the auction (through a negative entry fee or through a reserve price below the seller's value), or to provide appropriate entry incentives if a suitable reserve price is effective at maximizing total surplus and at extracting bidders' rents. We provide conditions under which the claims in GLL hold true.

Suggested Citation

  • Nicola Doni & Domenico Menicucci, 2019. "On the optimal entry fee and reserve price for auctions with selective entry: A comment on Gentry, Li, Lu (2017)," Working Papers - Economics wp2019_18.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  • Handle: RePEc:frz:wpaper:wp2019_18.rdf
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    References listed on IDEAS

    as
    1. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    2. Gentry, Matthew & Li, Tong & Lu, Jingfeng, 2017. "Auctions with selective entry," Games and Economic Behavior, Elsevier, vol. 105(C), pages 104-111.
    3. Paulo K. Monteiro & Flavio M. Menezes, 2000. "original papers : Auctions with endogenous participation," Review of Economic Design, Springer;Society for Economic Design, vol. 5(1), pages 71-89.
    4. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
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    More about this item

    Keywords

    Auctions; Endogenous Entry; Reserve price; Entry fee.;
    All these keywords.

    JEL classification:

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

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