Publication: Auctions with heterogeneous entry costs
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2006-01
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Abstract
We study the impact of public and secret reserve prices in auctions where buyers have
independent private values and heterogeneous entry costs. We find that in a standard auction the
optimal (i.e., revenue maximizing) public reserve price is typically above the seller's value.
Moreover, an appropriate entry fee together with a public reserve price equal to the seller's
value generates greater revenue. Secret reserve prices, however, differ across auction formats.
In a second-price sealed-bid auction the secret reserve price is above the optimal public reserve
price; hence there is less entry, a smaller probability of sale, and both the seller revenue and the
bidders' utility are less than with an optimal public reserve price. In contrast, in a first-price
sealed-bid auction the secret reserve is equal to the seller's value, and the bidders' expected
utility (seller revenue) is greater (less) than with an optimal public reserve price.
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Standard auctions, Endogenous entry, Heterogenous entry costs, Public reserve, Secret reserve