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RESERVE PRICE VERSUS ENTRY FEE IN STANDARD AUCTIONS

Indranil Chakraborty

Economic Inquiry, 2019, vol. 57, issue 1, 648-653

Abstract: Analysis of standard auction rules when bidders are risk averse is usually carried out under the assumption that the seller is able to set an optimal reserve. The role of entry fees has been generally overlooked in that analysis. We consider bidders with constant absolute risk aversion and show that reserve price is an essential tool in the second price auction while entry fee is essential in the first price auction. Furthermore, setting a reserve price and entry fee combination optimally may change some of the rankings of the standard auctions that hold under optimal reserves. (JEL D44)

Date: 2019
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