Working Paper: CEPR ID: DP9791
Authors: Philippe Jehiel; Laurent Lamy
Abstract: From a theory viewpoint, the use of auctions with zero public reserve prices also called absolute auctions, or the use of auctions with secret reserve prices is somehow puzzling despite being common. By allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret, we show in a competitive environment that these auction formats may endogenously emerge. We also analyze how buyers with various sophistications and sellers with various costs sort into the different formats, thereby offering a range of testable predictions. Alternative approaches are reviewed.
Keywords: absolute auctions; analogy-based expectations; competing auctions; endogenous entry; rational expectations; secret reserve prices
JEL Codes: D03; D44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cognitive type of buyers (D91) | auction format (D44) |
| seller valuation (G19) | auction format (D44) |
| buyer cognitive type (D91) | participation rates (J22) |
| buyer cognitive type (D91) | seller outcomes (L14) |
| partially coarse buyers (D43) | lower expected payoffs in secret reserve price auctions (D44) |
| fully coarse buyers (L81) | absolute auctions (D44) |
| fully rational buyers (D41) | public reserve price auctions (D44) |