Selling without Reserve as the Content of Optimal Auctions

Ron Harstad

University of Missouri

May 2003

Potential bidders respond to a seller's choice of auction mechanism for a common-value asset by endogenous decisions whether to incur a participation cost (and observe a private signal), or forego competing. Privately informed participants decide whether to incur a bid-preparation cost and pay an entry fee, or cease competing. The resulting revenue identity for any auction mechanism implies that optimal auctions are allocatively efficient; a nontrivial reserve price is revenue-inferior for any auction. The set of optimal auctions is otherwise contentless, in that any auction that sells without reserve is within the setting of one continuous parameter of an optimal auction; seller's surplus extracting tools are now substitutes, not complements. Revenue comparisons from the exogenous-bidders literature are upheld in a half-space of parameters, overturned in a half-space. Many econometric studies of auction markets are seen to be flawed in their identification of the number of bidders.

Keywords: optimal auctions, endogenous bidders, reserve price

JEL Classification: D44, D82, C72

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Date posted: August 12, 2003  

Suggested Citation

Harstad, Ron, Selling without Reserve as the Content of Optimal Auctions (May 2003). Available at SSRN: http://ssrn.com/abstract=412780

Contact Information

Ronald M Harstad (Contact Author)
University of Missouri ( email )
United States
HOME PAGE: http://harstad.missouri.edu
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