How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions
Daniel C. Quan
Cornell University - School of Hotel Administration
R. Preston McAfee
Yahoo! Research Labs
Daniel R. Vincent
University of Maryland - Department of Economics
Journal of Industrial Economics, Forthcoming
In a general auction model with affiliated signals, common components to valuations and endogenous entry, we compute the equilibrium bidding strategies and outcomes, and derive a lower bound on the optimal reserve price. This lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods. We illustrate how to compute the lower bound using data from real estate auctions.
Keywords: Auctions, Optimal Reserve Price, Real Estate
JEL Classification: D44
Date posted: September 13, 2002
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