We thank Leonardo Felli (the editor) and two anonymous referees for very valuable comments and suggestions. We have also benefited from helpful discussions with Urs Schweizer and Avner Shaked.
Reserve Prices in Auctions as Reference Points*
Article first published online: 1 JUN 2007
The Economic Journal
Volume 117, Issue 520, pages 637–653, April 2007
How to Cite
Rosenkranz, S. and Schmitz, P. W. (2007), Reserve Prices in Auctions as Reference Points. The Economic Journal, 117: 637–653. doi: 10.1111/j.1468-0297.2007.02044.x
- Issue published online: 1 JUN 2007
- Article first published online: 1 JUN 2007
- Submitted: 3 August 2004 Accepted: 3 April 2006
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.