On the optimal entry fee and reserve price for auctions with selective entry: A comment on Gentry, Li, Lu (2017)

Nicola Doni and Domenico Menicucci

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: Gentry, Li, Lu (2017) (GLL henceforth) study an auction model with endogenous entry in which, before the entry decision, each bidder observes a private signal; a higher signal implies a better distribution for the bidder's valuation. GLL claim that the optimal reserve price is greater than the seller's value for the object on sale and that the optimal entry fee is positive. We prove that these claims are incorrect: The seller may want to subsidize entry to stimulate competition in the auction (through a negative entry fee or through a reserve price below the seller's value), or to provide appropriate entry incentives if a suitable reserve price is effective at maximizing total surplus and at extracting bidders' rents. We provide conditions under which the claims in GLL hold true.

Keywords: Auctions; Endogenous Entry; Reserve price; Entry fee. (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Journal Article: On the optimal entry fee and reserve price for auctions with selective entry: A comment on Gentry, Li, Lu (2017) (2020)
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