Optimal choice of a reserve price under uncertainty

Dong-Hyuk Kim

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 587-602

Abstract: The revenue function for a standard auction is typically asymmetric around the revenue maximizing reserve price. Thus, choosing a reserve price that is smaller than the revenue maximizing reserve price can result in a substantially different loss than choosing one that is larger by the same amount. Therefore, when the revenue function is unknown, it is important to consider uncertainty around the revenue function and its asymmetric structure. For this purpose, I propose a Bayesian decision rule and illustrate its typical revenue gains. I then apply the rule to the bid data from the U.S. timber sales.

Keywords: Auction design; Bayesian decision theory; Revenue maximizing reserve price (search for similar items in EconPapers)
JEL-codes: C11 C44 D44 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:587-602

DOI: 10.1016/j.ijindorg.2013.10.003

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