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Reserve Price Versus Entry Fee In Standard Auctions

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  • Indranil Chakraborty

Abstract

Analysis of standard auction rules when bidders are risk averse is usually carried out under the assumption that the seller is able to set an optimal reserve. The role of entry fees has been generally overlooked in that analysis. We consider bidders with constant absolute risk aversion and show that reserve price is an essential tool in the second price auction while entry fee is essential in the first price auction. Furthermore, setting a reserve price and entry fee combination optimally may change some of the rankings of the standard auctions that hold under optimal reserves. (JEL D44)

Suggested Citation

  • Indranil Chakraborty, 2019. "Reserve Price Versus Entry Fee In Standard Auctions," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 648-653, January.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:648-653
    DOI: 10.1111/ecin.12715
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    References listed on IDEAS

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    Cited by:

    1. Vasserman, Shoshana & Watt, Mitchell, 2021. "Risk aversion and auction design: Theoretical and empirical evidence," International Journal of Industrial Organization, Elsevier, vol. 79(C).

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    JEL classification:

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

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