Low Reserve Prices in Auctions

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

3 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)2563–2580
Journal / PublicationEconomic Journal
Volume129
Issue number622
Online published5 Apr 2019
Publication statusPublished - Aug 2019

Abstract

A standard result in auction theory is that a seller’s profit-maximizing 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 paper 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.

Research Area(s)

  • reserve price, risk aversion, interdependent values, second-price auction

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

Low Reserve Prices in Auctions. / Hu, Audrey; Matthews, Steven A.; Zou, Liang.

In: Economic Journal, Vol. 129, No. 622, 08.2019, p. 2563–2580.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review