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On the use of reserve prices in the English auction

Author

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  • Fabio Michelucci

    (Department of Economics, Ca' Foscari University of Venice)

Abstract

We show that the introduction of a reserve price may promote entry, increase social welfare, and also induce higher revenues. The first two facts are in stark contrast with the relationship between reserve prices and entry pointed out by the literature. Our different result is obtained in a setting in which potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale.

Suggested Citation

  • Fabio Michelucci, 2021. "On the use of reserve prices in the English auction," Working Papers 2021:31, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2021:31
    as

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    References listed on IDEAS

    as
    1. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    2. Theo Offerman, 2002. "Efficiency in Auctions with Private and Common Values: An Experimental Study," American Economic Review, American Economic Association, vol. 92(3), pages 625-643, June.
    3. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
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    More about this item

    Keywords

    entry; reserve prices; auctions;
    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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