Soft-Floor Auctions: Harnessing Regret to Improve Efficiency and Revenue

Dirk Bergemann, Kevin Breuer, Peter Cramton, Jack Hirsch, Yero Ndiaye and Axel Ockenfels
Additional contact information
Dirk Bergemann: Yale University
Peter Cramton: Max Planck Institute for Research on Collective Goods and University of Maryland
Jack Hirsch: Harvard University
Yero Ndiaye: University of Cologne and Max Planck Institute for Research on Collective Goods
Axel Ockenfels: University of Cologne and Max Planck Institute for Research on Collective Goods

No 2438, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A soft-floor auction asks bidders to accept an opening price to participate in an ascending auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free ascending auction. Efficiency is improved since having a soft floor allows for a lower hard reserve price, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice.

Pages: 51 pages
Date: 2025-04-14
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