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Bundling decisions in multi-objects auctions with optimal reserve prices

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  • Chen, Yanbin
  • Li, Sanxi
  • Yu, Jun

Abstract

This paper investigates a seller’s bundling decision when he/she sells multiple objects to two potential buyers through auctions in which he/she can optimally set reserve prices. We show how the optimal reserve prices in bundled/separate auctions and the seller’s bundling decisions are affected by the correlations of the valuations across buyers and objects. Interestingly, when each object’s valuations are sufficiently negatively correlated across buyers, the seller’s revenue is higher under unbundling than under bundling. The result is in contrast with that obtained by Palfrey (1983), who showed that, without considering optimal reserve prices, the seller’s revenue is always higher under bundling regardless of correlations across either buyers or objects when there are two buyers.

Suggested Citation

  • Chen, Yanbin & Li, Sanxi & Yu, Jun, 2018. "Bundling decisions in multi-objects auctions with optimal reserve prices," Economics Letters, Elsevier, vol. 163(C), pages 141-145.
    • Handle: RePEc:eee:ecolet:v:163:y:2018:i:c:p:141-145
    DOI: 10.1016/j.econlet.2017.11.015
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    References listed on IDEAS

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    1. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-483, March.
    2. Indranil Chakraborty, 1999. "Bundling decisions for selling multiple objects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(3), pages 723-733.
    3. Jehiel, Philippe & Meyer-ter-Vehn, Moritz & Moldovanu, Benny, 2007. "Mixed bundling auctions," Journal of Economic Theory, Elsevier, vol. 134(1), pages 494-512, May.
    4. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 371-383.
    5. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    6. Chakraborty, Indranil, 2006. "Bundle and separate sales in auctions with entry," Games and Economic Behavior, Elsevier, vol. 54(1), pages 31-46, January.
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    Cited by:

    1. S{i}la Ada & Nadia Abou Nabout & Elea McDonnell Feit, 2020. "Context information increases revenue in ad auctions: Evidence from a policy change," Papers 2012.00840, arXiv.org.

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    More about this item

    Keywords

    Auction; Bundling; Reserve prices; Multiobjects;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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