Reserve prices in auctions as reference points
We consider second-price and first-price auctions in the symmetric independentprivate values framework. We modify the standard model by theassumption that the bidders have reference-based utility, where the reserveprice (minimum bid) plays the role of the reference point. In contrast to theusual result, the sellerâ€™s optimal reserve price is increasing in the number ofbidders. Even if an individual bidder perceives only a very small utility losswhen he has to pay more than the reserve price, the impact on the optimalreserve price can be strong when there are many bidders.
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