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Why the Reserve Price Should Not Be Kept Secret

Author

Listed:
  • Brisset Karine

    (C.R.E.S.E, Université de Franche-Comté, France)

  • Naegelen Florence

    (C.R.E.S.E., Université de Franche-Comté, France)

Abstract

This paper considers the optimality of setting a secret reserve price in ascending auctions. Contrary to intuition, an ascending auction is no longer equivalent to a second price auction when the reserve price is secret. We determine the seller's optimal reserve price policy when the bidders' values are private and independently distributed and when the bidders are risk averse. We show that an optimal secret reserve price policy can dominate an optimal public reserve price policy when the bidders' degree of constant relative risk aversion is sufficiently high and when the seller can commit to a reserve price policy before learning her type. In contrast, a secret reserve price policy can never be part of a Bayesian equilibrium when the seller is informed.

Suggested Citation

  • Brisset Karine & Naegelen Florence, 2006. "Why the Reserve Price Should Not Be Kept Secret," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-19, April.
    • Handle: RePEc:bpj:bejtec:v:topics.6:y:2006:i:1:n:5
    DOI: 10.2202/1534-598X.1260
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    Cited by:

    1. Lazear, Edward P., 2015. "The impatient salesperson and the delegation of pricing authority," Research in Economics, Elsevier, vol. 69(1), pages 63-74.
    2. Hu, Yingyao & McAdams, David & Shum, Matthew, 2013. "Identification of first-price auctions with non-separable unobserved heterogeneity," Journal of Econometrics, Elsevier, vol. 174(2), pages 186-193.
    3. Chen, Kong-Pin & Lai, Hung-pin & Yu, Ya-Ting, 2018. "The seller's listing strategy in online auctions: Evidence from eBay," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 107-144.
    4. Pasha Andreyanov & El Hadi Caoui, 2022. "Secret reserve prices by uninformed sellers," Quantitative Economics, Econometric Society, vol. 13(3), pages 1203-1256, July.
    5. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(1), pages 3-42, August.
    6. Brisset, Karine & Cochard, François & Le Gallo, Julie, 2015. "Secret versus public reserve price in an “outcry” English procurement auction: Experimental results," International Journal of Production Economics, Elsevier, vol. 169(C), pages 285-298.
    7. Kotowski, Maciej H., 2018. "On asymmetric reserve prices," Theoretical Economics, Econometric Society, vol. 13(1), January.

    More about this item

    Keywords

    secret reserve price; ascending auction;

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