Endogenous Entry to Security-Bid Auctions

Takeharu Sogo, Dan Bernhardt and Tingjun Liu

American Economic Review, 2016, vol. 106, issue 11, 3577-89

Abstract: We endogenize entry to a security-bid auction, where participation is costly and bidders must decide given their private valuations whether to participate. We first consider any minimum reserve security-bid of a fixed expected value that weakly exceeds the asset's value when retained by the seller. DeMarzo, Kremer, and Skrzypacz (2005) establish that with a fixed number of bidders, auctions with steeper securities yield the seller more revenues. Counterintuitively, we find that auctions with steeper securities also attract more entry, further enhancing the revenues from such auctions. We then establish that with optimal reserve securities, auctions with steeper securities always yield higher expected revenues.

JEL-codes: D44 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20151538
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Citations: View citations in EconPapers (15)

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