Reserve Prices in Auctions as Reference Points

Stephanie Rosenkranz and Patrick Schmitz

Economic Journal, 2007, vol. 117, issue 520, 637-653

Abstract: We consider second-price and first-price auctions in the symmetric independent private values framework. We modify the standard model by the assumption that the bidders have reference-based utility, where a publicly announced reserve price has some influence on the reference point. It turns out that the seller's optimal reserve price increases with the number of bidders. Also in contrast to the standard model, we find that secret reserve prices can outperform public reserve prices, and that setting the optimal reserve price can be more valuable for the seller than attracting additional bidders. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Date: 2007
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Related works:
Working Paper: Reserve prices in auctions as reference points (2005)
Working Paper: Reserve prices in auctions as reference points (2005)
Working Paper: Reserve Prices in Auctions as Reference Points (2004)
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