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Efficiency in asymmetric auctions with endogenous reserve prices

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  • Kirkegaard, René

Abstract

In the standard independent private values model, the second-price auction (SPA) is generally taken to be more efficient than the first-price auction (FPA) when bidders are asymmetric. However, this conclusion assumes that reserve prices are identical across auctions. This paper endogenizes the reserve price and shows that it may be lower in the FPA. Hence, gains from trade are realized more often in the FPA. This effect may make the FPA more efficient than the SPA. Indeed, the FPA may Pareto dominate the SPA. That is, the FPA may be more profitable and yet be preferred by all bidders.

Suggested Citation

  • Kirkegaard, René, 2022. "Efficiency in asymmetric auctions with endogenous reserve prices," Games and Economic Behavior, Elsevier, vol. 132(C), pages 234-239.
    • Handle: RePEc:eee:gamebe:v:132:y:2022:i:c:p:234-239
    DOI: 10.1016/j.geb.2021.12.007
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    2. Minchuk, Yizhaq & Sela, Aner, 2023. "Subsidy and taxation in all-pay auctions under incomplete information," Games and Economic Behavior, Elsevier, vol. 140(C), pages 99-114.

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    More about this item

    Keywords

    Asymmetric auctions; Efficiency; Reserve prices;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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