Reserve Prices in Auctions as Reference Points

17 Pages Posted: 1 Jun 2007

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)

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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 a publicly announced reserve price has some influence on the reference point. It turns out that the seller's optimal reserve price increases with the number of bidders. Also in contrast to the standard model, we find that secret reserve prices can outperform public reserve prices, and that setting the optimal reserve price can be more valuable for the seller than attracting additional bidders.

Suggested Citation

Rosenkranz, Stephanie and Schmitz, Patrick W., Reserve Prices in Auctions as Reference Points. Economic Journal, Vol. 117, No. 520, pp. 637-653, April 2007. Available at SSRN: https://ssrn.com/abstract=990111 or http://dx.doi.org/10.1111/j.1468-0297.2007.02044.x

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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