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Secret reserve prices in first-price auctions

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  • Rosar, Frank

Abstract

This article offers a theoretical explanation for the use of secret reserve prices in auctions. I study first-price auctions with and without secret reserve price in an independent private values environment with risk-neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using a secret reserve price to phantom bidding and non-commitment to sell.

Suggested Citation

  • Rosar, Frank, 2014. "Secret reserve prices in first-price auctions," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 65-74.
    • Handle: RePEc:eee:indorg:v:37:y:2014:i:c:p:65-74
    DOI: 10.1016/j.ijindorg.2014.07.008
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    References listed on IDEAS

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    1. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Reserve Prices in Auctions as Reference Points," Economic Journal, Royal Economic Society, vol. 117(520), pages 637-653, April.
    2. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    3. Horstmann, Ignatius J & LaCasse, Chantale, 1997. "Secret Reserve Prices in a Bidding Model with a Resale Option," American Economic Review, American Economic Association, vol. 87(4), pages 663-684, September.
    4. Bernard Elyakime & Jean-Jacques Laffont & Patrice Loisel & Quang Vuong, 1994. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," Annals of Economics and Statistics, GENES, issue 34, pages 71-114.
    5. Keith Waehrer & Ronald M. Harstad & Michael H. Rothkopf, 1998. "Auction Form Preferences of Risk-Averse Bid Takers," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 179-192, Spring.
    6. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    7. Vincent Daniel R., 1995. "Bidding Off the Wall: Why Reserve Prices May Be Kept Secret," Journal of Economic Theory, Elsevier, vol. 65(2), pages 575-584, April.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    9. repec:adr:anecst:y:1994:i:34:p:04 is not listed on IDEAS
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    Cited by:

    1. Onur A. Koska & Frank Stähler, 2022. "Reserve Prices as Signals," Working Papers in Economics 22/10, University of Canterbury, Department of Economics and Finance.
    2. Lovo, Stefano & Spaenjers, Christophe, 2017. "No-trade in second-price auctions with entry costs and secret reserve prices," Economics Letters, Elsevier, vol. 156(C), pages 142-144.

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    More about this item

    Keywords

    First-price auction; Secret reserve price; Phantom bidding; Non-connected bid space; Risk-averse seller;
    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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