We show that the introduction of a reserve price may promote entry, increase social welfare, and also induce higher revenues. The first two facts are in stark contrast with the relationship between reserve prices and entry pointed out by the literature. Our different result is obtained in a setting in which potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale.
On the use of reserve prices in the English auction
Fabio MICHELUCCI
2021-01-01
Abstract
We show that the introduction of a reserve price may promote entry, increase social welfare, and also induce higher revenues. The first two facts are in stark contrast with the relationship between reserve prices and entry pointed out by the literature. Our different result is obtained in a setting in which potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale.
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