Reserve Prices in Auctions as Reference Points

Stephanie Rosenkranz and Patrick Schmitz

No 4264, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 the reserve price (minimum bid) plays the role of the reference point. In contrast to the usual result, the seller?s optimal reserve price is increasing in the number of bidders. Even if an individual bidder perceives only a very small utility loss when they have to pay more than the reserve price, the impact on the optimal reserve price can be strong when there are many bidders.

Keywords: Behavioural economics; Auction theory; Reserve prices; Reference points (search for similar items in EconPapers)
JEL-codes: D44 D81 D82 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (3)

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