Reserve Price (In)equivalence: Shill Bidding to Lower the Reserve Price

Seungwon (Eugene) Jeong

Bulletin of Economic Research, 2025, vol. 77, issue 2, 121-127

Abstract: The optimal reserve price of the third‐price auction with two bidders differs from that with more than two bidders, whereas the optimal reserve price of the second‐price auction is the same regardless of the number of bidders. We generalize this result to the kth‐price multiunit auctions with single‐unit demand, and introduce a new kind of shill‐bidding incentive of bidders in order to lower the reserve price. Alongside budget constraints caused by overbidding, this may explain why third‐price auctions are rare in practice.

Date: 2025
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