Do Auctioneers Pick Optimal Reserve Prices?

Andrew M. Davis (), Elena Katok () and Anthony M. Kwasnica ()
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Andrew M. Davis: Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802
Anthony M. Kwasnica: Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802

Management Science, 2011, vol. 57, issue 1, 177-192

Abstract: We investigate how auctioneers set reserve prices in auctions. A well-established theoretical result, assuming risk neutrality of the seller, is that the optimal reserve price should not depend on the number of participating bidders. In a set of controlled laboratory experiments, we find that seller behavior often deviates from the theoretical benchmarks. We extend the existing theory to explore three alternative explanations for our results: risk aversion, anticipated regret, and probability weighting. After fitting our data to each of these models through parameter estimation techniques on both an aggregate and individual level, we find that all three models are consistent with some of the characteristics of our data, but that the regret model provides a slightly more favorable fit overall. This paper was accepted by Teck-Hua Ho, decision analysis.

Keywords: reserve prices; procurement auctions; behavioral operations (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:57:y:2011:i:1:p:177-192

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