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When should bidders learn reserve prices?

Author

Listed:
  • Onur A. Koska

    (Department of Economics, Middle East Technical University, Ankara, Turkey)

  • Frank Stähler

    (School of Business and Economics, University of Tübingen, Tübingen, Germany; University of Adelaide, Adelaide, Australia; CESifo, Germany)

Abstract

This paper discusses the role of reserve prices when the signal of each bidder is positively affiliated with the seller's signal. We distinguish three reserve price designs: a public reserve price, announced before the auction starts, a revealed reserve price, disclosed when a bid matches it, and a secret reserve price that is disclosed after the highest bid has been reached. We show that a public or a revealed reserve price are strategically equivalent, and we show that no seller will set a secret reserve price.

Suggested Citation

  • Onur A. Koska & Frank Stähler, 2017. "When should bidders learn reserve prices?," ERC Working Papers 1712, ERC - Economic Research Center, Middle East Technical University, revised Oct 2017.
    • Handle: RePEc:met:wpaper:1712
    as

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    File URL: http://erc.metu.edu.tr/en/system/files/menu/series17/1712.pdf
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    References listed on IDEAS

    as
    1. Philippe Jehiel & Laurent Lamy, 2015. "On absolute auctions and secret reserve prices," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 241-270, June.
    2. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Reserve Prices in Auctions as Reference Points," Economic Journal, Royal Economic Society, vol. 117(520), pages 637-653, April.
    3. Bernard Elyakime & Jean-Jacques Laffont & Patrice Loisel & Quang Vuong, 1994. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," Annals of Economics and Statistics, GENES, issue 34, pages 71-114.
    4. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    5. Horstmann, Ignatius J & LaCasse, Chantale, 1997. "Secret Reserve Prices in a Bidding Model with a Resale Option," American Economic Review, American Economic Association, vol. 87(4), pages 663-684, September.
    6. Simon Grant & Atsushi Kajii & Flavio Menezes & Matthew J. Ryan, 2006. "Auctions with options to re‐auction," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(1), pages 17-39, March.
    7. Menezes, Flavio & Ryan, Matthew J., 2005. "Reserve price commitments in auctions," Economics Letters, Elsevier, vol. 87(1), pages 35-39, April.
    8. Tong Li & Isabelle Perrigne, 2003. "Timber Sale Auctions with Random Reserve Prices," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 189-200, February.
    9. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    11. repec:adr:anecst:y:1994:i:34:p:04 is not listed on IDEAS
    12. Elyakime, Bernhard & Loisel, Patrice, 2005. "An optimal standing timber auction?," Journal of Forest Economics, Elsevier, vol. 11(2), pages 107-120, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Auctions with affiliation; optimal reserve prices.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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