Advertising a second-price auction

Rui Fang and Xiaohu Li

Journal of Mathematical Economics, 2015, vol. 61, issue C, 246-252

Abstract: This study examines a symmetric private-value second-price auction model in which the seller solicits bidders at a cost, sets a reserve price, and receives a payoff which is a convex combination of revenue and welfare. The bidder’s valuations are drawn from a distribution with a decreasing hazard rate and non-decreasing virtual valuations. We find that at equilibrium the seller adopts an advertising policy which minimizes the uncertainty over the number of participants, and sets a reserve price which only depends on the distribution of valuations and the weight on revenue in the objective function. A welfare-maximizing seller is shown to advertise more than a revenue-maximizing seller, and a ceteris paribus increase in the advertising level is proved to increase the expected winner’s rent.

Keywords: Decreasing hazard rate; Non-decreasing virtual valuations; Expected winner’s rent (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:61:y:2015:i:c:p:246-252

DOI: 10.1016/j.jmateco.2015.04.003

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