Promoting Entry and Efficiency via Reserve Prices
Reserve prices are used by sellers to modify the allocation induced by standard auctions. The existing literature has shown that, if the number of bidders is fixed, a reserve price can be used to increase expected revenues. This comes at the expense of efficiency when the auctioned good goes unsold....
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-06-01
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| Series: | Games |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2073-4336/13/4/50 |
| _version_ | 1797445244616179712 |
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| author | Fabio Michelucci |
| author_facet | Fabio Michelucci |
| author_sort | Fabio Michelucci |
| collection | DOAJ |
| description | Reserve prices are used by sellers to modify the allocation induced by standard auctions. The existing literature has shown that, if the number of bidders is fixed, a reserve price can be used to increase expected revenues. This comes at the expense of efficiency when the auctioned good goes unsold. Instead, when the number of bidders is not fixed, a reserve price may discourage entry. The reduction in the number of bidders caused by the reserve price in this situation is detrimental for both revenues and efficiency. This work shows that a different conclusion may emerge when potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale. In fact, we show that reserve prices may lead to more entry and raise the efficiency. Applications characterized by the presence of an incumbent who is better informed about some common characteristics of the object for sale may yield the type of features that are needed for our different conclusion to hold. |
| first_indexed | 2024-03-09T13:23:58Z |
| format | Article |
| id | doaj.art-0e07a5b6538a46a3a73a0f2766c9df49 |
| institution | Directory Open Access Journal |
| issn | 2073-4336 |
| language | English |
| last_indexed | 2024-03-09T13:23:58Z |
| publishDate | 2022-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Games |
| spelling | doaj.art-0e07a5b6538a46a3a73a0f2766c9df492023-11-30T21:26:17ZengMDPI AGGames2073-43362022-06-011345010.3390/g13040050Promoting Entry and Efficiency via Reserve PricesFabio Michelucci0Department of Economics, Ca’ Foscari University of Venice, 30121 Venice, ItalyReserve prices are used by sellers to modify the allocation induced by standard auctions. The existing literature has shown that, if the number of bidders is fixed, a reserve price can be used to increase expected revenues. This comes at the expense of efficiency when the auctioned good goes unsold. Instead, when the number of bidders is not fixed, a reserve price may discourage entry. The reduction in the number of bidders caused by the reserve price in this situation is detrimental for both revenues and efficiency. This work shows that a different conclusion may emerge when potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale. In fact, we show that reserve prices may lead to more entry and raise the efficiency. Applications characterized by the presence of an incumbent who is better informed about some common characteristics of the object for sale may yield the type of features that are needed for our different conclusion to hold.https://www.mdpi.com/2073-4336/13/4/50reserve pricesentryauctionsEnglish auction |
| spellingShingle | Fabio Michelucci Promoting Entry and Efficiency via Reserve Prices Games reserve prices entry auctions English auction |
| title | Promoting Entry and Efficiency via Reserve Prices |
| title_full | Promoting Entry and Efficiency via Reserve Prices |
| title_fullStr | Promoting Entry and Efficiency via Reserve Prices |
| title_full_unstemmed | Promoting Entry and Efficiency via Reserve Prices |
| title_short | Promoting Entry and Efficiency via Reserve Prices |
| title_sort | promoting entry and efficiency via reserve prices |
| topic | reserve prices entry auctions English auction |
| url | https://www.mdpi.com/2073-4336/13/4/50 |
| work_keys_str_mv | AT fabiomichelucci promotingentryandefficiencyviareserveprices |