On Absolute Auctions and Secret Reserve Prices

48 Pages Posted: 2 Jun 2014

See all articles by Philippe Jehiel

Philippe Jehiel

University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Laurent Lamy

Paris School of Economics (PSE)

Date Written: January 2014

Abstract

From a theory viewpoint, the use of auctions with zero public reserve prices also called absolute auctions, or the use of auctions with secret reserve prices is somehow puzzling despite being common. By allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret, we show in a competitive environment that these auction formats may endogenously emerge. We also analyze how buyers with various sophistications and sellers with various costs sort into the different formats, thereby offering a range of testable predictions. Alternative approaches are reviewed.

Keywords: absolute auctions, analogy-based expectations, competing auctions, endogenous entry, rational expectations, secret reserve prices

JEL Classification: D03, D44

Suggested Citation

Jehiel, Philippe and Lamy, Laurent, On Absolute Auctions and Secret Reserve Prices (January 2014). CEPR Discussion Paper No. DP9791, Available at SSRN: https://ssrn.com/abstract=2444789

Philippe Jehiel (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2873 (Phone)
+33 1 4458 2880 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Laurent Lamy

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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