How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions

Posted: 13 Sep 2002

See all articles by Daniel C. Quan

Daniel C. Quan

Cornell University - School of Hotel Administration

R. Preston McAfee

California Institute of Technology - Division of the Humanities and Social Sciences; Yahoo! - Yahoo! Research Labs

Daniel R. Vincent

University of Maryland - Department of Economics

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Abstract

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

Suggested Citation

Quan, Daniel C. and McAfee, Randolph Preston and McAfee, Randolph Preston and Vincent, Daniel R., How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions. Available at SSRN: https://ssrn.com/abstract=314963

Daniel C. Quan (Contact Author)

Cornell University - School of Hotel Administration ( email )

436 Statler Hall
Cornell University
Ithaca, NY 14853-6902
United States
607-255-6404 (Phone)
607-255-1277 (Fax)

Randolph Preston McAfee

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089
United States

Daniel R. Vincent

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3485 (Phone)
301-405-3542 (Fax)

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