Secret reserve prices by uninformed sellers

Abstract

If bidders are better informed than the seller about a common component of auction heterogeneity, the seller can allocate more efficiently by keeping her reserve price secret and revising it using submitted bids. We build a model of a first‐price auction under unobserved auction heterogeneity—imperfectly observed by the seller—that captures this rationale and derive conditions for identification. An application to French timber auctions, where such revisions are widely used, shows that having perfect information about unobserved auction heterogeneity would increase surplus by 5.22%. Combining a secret reserve price with learning from submitted bids reduces this surplus gap by up to 84%.

Identification in ascending auctions, with an application to digital rights management

“…Hu, McAdams, and Shum (2013) extended these results to apply to settings with nonseparable unobserved auction‐level heterogeneity (where the number of potential bidders in An, Hu, and Shum (2010) can be considered a form of unobserved heterogeneity in their model) when three bids are observable in first price auctions. Additional work studying unobserved heterogeneity in first price auctions includes Armstrong (2013), Balat (2017), Seifert and Hüttel (2020), and Andreyanov and Caoui (2020). As explained above, existing deconvolution approaches (Li and Vuong (1998), Li, Perrigne, and Vuong (2000), Krasnokutskaya (2011)) have thus far been applied primarily in first price auctions (with a known number of bidders) where, unlike ascending auctions, independent bids are available.…”