Empirical Evidence on the Impact of Reserve Prices in English Auctions

Authors


  • I would like to thank three anonymous referees for many useful comments and suggestions. I also wish to thank Hattrick's GM-coyotik for his help in identifying potentially relevant Hattrick variables to use in the analysis. I would also like to thank Miguel Fonseca and participants in seminars at the Universidade de Aveiro and Universidade Católica Portuguesa, as well as in the 3rd Meeting of the Portuguese Economic Journal (Funchal, Portugal) for their helpful comments and suggestions. Financial support from FCT (Foundation for Science and Technology) and POCI 2010 is gratefully acknowledged.

Abstract

We study the impact of reserve prices on the revenue of English auctions using a unique hand-collected database of virtual football players from the online football management game Hattrick. As theoretically predicted, setting a reserve price entails a trade-off between the cost of setting it too high and having the good go unsold, and the benefit associated with a higher revenue should the reserve price successfully extract surplus from the highest bidder. Overall, we find the net benefit of setting a higher reserve price to be negative, regardless of the value of the reserve price. This is a novel result insofar as previous literature has generally found an insignificant or positive effect of the reserve price on unconditional auction revenue.

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