Low Reserve Prices in Auctions

Audrey Hu, Steven Matthews () and Liang Zou

The Economic Journal, 2019, vol. 129, issue 622, 2563-2580

Abstract: A standard result in auction theory is that a seller’s profit-maximising reserve price is no less than his own value for the good. In practice, however, reserve prices often appear to be less than sellers’ values. This article revisits the theory of optimal reserves in the context of second-price auctions. The main result is that an optimal reserve is less than the seller’s value if the bidders are sufficiently risk averse and if their values are sufficiently interdependent. The resulting outcome may approximate that of an auction without reserve, i.e., an absolute auction.

Date: 2019
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Citations: View citations in EconPapers (6)

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Working Paper: Low Reserve Prices in Auctions (2017)
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