Reserve Prices in Auctions as Reference Points

17 Pages Posted: 25 Feb 2004

See all articles by Stephanie Rosenkranz

Stephanie Rosenkranz

Utrecht University - School of Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2004

Abstract

We consider second-price and first-price auctions in the symmetric independent private values framework. We modify the standard model by the assumption that the bidders have reference-based utility, where the reserve price (minimum bid) plays the role of the reference point. In contrast to the usual result, the seller's optimal reserve price is increasing in the number of bidders. Even if an individual bidder perceives only a very small utility loss when they have to pay more than the reserve price, the impact on the optimal reserve price can be strong when there are many bidders.

Keywords: Behavioural economics, auction theory, reserve prices, reference points

JEL Classification: D44, D81, D82

Suggested Citation

Rosenkranz, Stephanie and Schmitz, Patrick W., Reserve Prices in Auctions as Reference Points (February 2004). CEPR Discussion Paper No. 4264. Available at SSRN: https://ssrn.com/abstract=509103

Stephanie Rosenkranz (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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