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Soft-Floor Auctions: Harnessing Regret to Improve Efficiency and Revenue

Author

Listed:
  • Dirk Bergemann

    (Yale University)

  • Kevin Breuer
  • Peter Cramton

    (Max Planck Institute for Research on Collective Goods and University of Maryland)

  • Jack Hirsch

    (Harvard University)

  • Yero S. Ndiaye

    (University of Cologne and Max Planck Institute for Research on Collective Goods)

  • Axel Ockenfels

    (University of Cologne and Max Planck Institute for Research on Collective Goods)

Abstract

A soft-floor auction asks bidders to accept an opening price to participate in an ascending auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free ascending auction. Efficiency is improved since having a soft floor allows for a lower hard reserve price, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice.

Suggested Citation

  • Dirk Bergemann & Kevin Breuer & Peter Cramton & Jack Hirsch & Yero S. Ndiaye & Axel Ockenfels, 2025. "Soft-Floor Auctions: Harnessing Regret to Improve Efficiency and Revenue," Cowles Foundation Discussion Papers 2438, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2438
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    File URL: https://cowles.yale.edu/sites/default/files/2025-04/d2438.pdf
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