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Optimal Reservation Prices in Auctions

Optimal Reservation Prices in Auctions Abstract The risk-neutral independent-private-values (IPV) auction model produces curious results regarding the use of reservation prices: no matter how many bidders, the seller should announce a fixed reservation price above his true value. This is notable since the seller gains by adopting an inefficient institution, and puzzling because it conflicts with common practice. We relax the IPV assumption, characterise optimal reservation prices in a richer class of auctions, and show that when information is correlated the seller's optimal reservation price converges to his true value, often monotonically and rapidly, as the number of bidders grows. This content is only available as a PDF. Author notes The authors thank the editor and two referees for many helpful comments, and acknowledge Kemal Guler, who offered many helpful suggestions; John Riley, who provided initial impetus for the work; and seminar participants at the University of Pittsburgh, Johns Hopkins, Virginia Tech, and the University of Houston. The authors also acknowledge financial support provided by Resources for the Future and the University of Houston Energy Laboratory. In addition, Dan Levin's support from the National Science Foundation is gratefully acknowledged. The views expressed here do not necessarily represent those of any sponsoring organisation © Royal Economic Society 1996 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Journal Oxford University Press

Optimal Reservation Prices in Auctions

Economic Journal , Volume 106 (438) – Sep 1, 1996

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References (17)

Publisher
Oxford University Press
Copyright
© Royal Economic Society 1996
ISSN
0013-0133
eISSN
1468-0297
DOI
10.2307/2235520
Publisher site
See Article on Publisher Site

Abstract

Abstract The risk-neutral independent-private-values (IPV) auction model produces curious results regarding the use of reservation prices: no matter how many bidders, the seller should announce a fixed reservation price above his true value. This is notable since the seller gains by adopting an inefficient institution, and puzzling because it conflicts with common practice. We relax the IPV assumption, characterise optimal reservation prices in a richer class of auctions, and show that when information is correlated the seller's optimal reservation price converges to his true value, often monotonically and rapidly, as the number of bidders grows. This content is only available as a PDF. Author notes The authors thank the editor and two referees for many helpful comments, and acknowledge Kemal Guler, who offered many helpful suggestions; John Riley, who provided initial impetus for the work; and seminar participants at the University of Pittsburgh, Johns Hopkins, Virginia Tech, and the University of Houston. The authors also acknowledge financial support provided by Resources for the Future and the University of Houston Energy Laboratory. In addition, Dan Levin's support from the National Science Foundation is gratefully acknowledged. The views expressed here do not necessarily represent those of any sponsoring organisation © Royal Economic Society 1996

Journal

Economic JournalOxford University Press

Published: Sep 1, 1996

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