Secret Reserve Prices by Uninformed Sellers

60 Pages Posted: 18 Feb 2021 Last revised: 7 Sep 2021

See all articles by Pasha Andreyanov

Pasha Andreyanov

National Research University Higher School of Economics (Moscow) - Department of Economic Theory and Econometrics

El Hadi Caoui

Rotman School of Management; University of Toronto at Mississauga - Department of Management

Date Written: November 30, 2020

Abstract

If bidders are better informed than the seller about a common component of auction heterogeneity, the seller can allocate more efficiently by keeping her reserve price secret and revising it using submitted bids. We build a model of a first-price auction under unobserved auction heterogeneity-imperfectly observed by the seller-that captures this rationale and derive conditions for identification. An application to French timber auctions, where such revisions are widely used, shows that having perfect information about unobserved auction heterogeneity would increase surplus by 5.22%. Combining a secret reserve price with learning from submitted bids reduces this surplus gap by up to 84%.

Keywords: reserve prices, unobserved heterogeneity, first-price auction, timber industry

JEL Classification: D44, C57, Q23

Suggested Citation

Andreyanov, Pavel and Caoui, El Hadi and Caoui, El Hadi, Secret Reserve Prices by Uninformed Sellers (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3761377 or http://dx.doi.org/10.2139/ssrn.3761377

Pavel Andreyanov

National Research University Higher School of Economics (Moscow) - Department of Economic Theory and Econometrics ( email )

Shabolovka 26
Moscow, 119049
Russia

HOME PAGE: http://pandreyanov.com/

El Hadi Caoui (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

Rotman School of Management ( email )

Canada

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