Auctions with Options to Re-auction

S. Grant, A. Kajii, F. Menezes, M. Ryan

Research output: Working paperDiscussion paperOther research output

225 Downloads (Pure)

Abstract

We examine the role of seller bidding and reserve prices in an infinitely repeated independent-private-value (IPV) ascending-price auction.The seller has a single object that she values at zero.At the end of any auction round, she may either sell to the highest bidder or pass-in the object and hold a new auction next period.New bidders are drawn randomly in each round.The ability to re-auction motivates a notion of reserve price as the option value of retaining the object for re-auctioning.Even in the absence of a mechanism with which to commit to a reserve price, the optimal secret reserve is shown to exceed zero. However, despite the infinite repetition, there may be significant value to the seller from a binding reserve price commitment: the optimal binding reserve is higher than the optimal "secret" reserve, and may be substantially so, even with very patient players.Furthermore, reserve price commitments may even be socially preferable at high discount factors.We also show that the optimal phantom bidding strategy for the seller is revenue-equivalent to a commitment to an optimal public reserve price.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages41
Volume2002-55
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-55

Fingerprint

Auctions
Reserve price
Seller
Independent private values
Bidding
Discount factor
Revenue
Bidding strategy
Option value

Keywords

  • auctions
  • bidding
  • internet

Cite this

Grant, S., Kajii, A., Menezes, F., & Ryan, M. (2002). Auctions with Options to Re-auction. (CentER Discussion Paper; Vol. 2002-55). Tilburg: Microeconomics.
Grant, S. ; Kajii, A. ; Menezes, F. ; Ryan, M. / Auctions with Options to Re-auction. Tilburg : Microeconomics, 2002. (CentER Discussion Paper).
@techreport{78aa036492214f88963ddde61fcfa0f0,
title = "Auctions with Options to Re-auction",
abstract = "We examine the role of seller bidding and reserve prices in an infinitely repeated independent-private-value (IPV) ascending-price auction.The seller has a single object that she values at zero.At the end of any auction round, she may either sell to the highest bidder or pass-in the object and hold a new auction next period.New bidders are drawn randomly in each round.The ability to re-auction motivates a notion of reserve price as the option value of retaining the object for re-auctioning.Even in the absence of a mechanism with which to commit to a reserve price, the optimal secret reserve is shown to exceed zero. However, despite the infinite repetition, there may be significant value to the seller from a binding reserve price commitment: the optimal binding reserve is higher than the optimal {"}secret{"} reserve, and may be substantially so, even with very patient players.Furthermore, reserve price commitments may even be socially preferable at high discount factors.We also show that the optimal phantom bidding strategy for the seller is revenue-equivalent to a commitment to an optimal public reserve price.",
keywords = "auctions, bidding, internet",
author = "S. Grant and A. Kajii and F. Menezes and M. Ryan",
note = "Pagination: 41",
year = "2002",
language = "English",
volume = "2002-55",
series = "CentER Discussion Paper",
publisher = "Microeconomics",
type = "WorkingPaper",
institution = "Microeconomics",

}

Grant, S, Kajii, A, Menezes, F & Ryan, M 2002 'Auctions with Options to Re-auction' CentER Discussion Paper, vol. 2002-55, Microeconomics, Tilburg.

Auctions with Options to Re-auction. / Grant, S.; Kajii, A.; Menezes, F.; Ryan, M.

Tilburg : Microeconomics, 2002. (CentER Discussion Paper; Vol. 2002-55).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Auctions with Options to Re-auction

AU - Grant, S.

AU - Kajii, A.

AU - Menezes, F.

AU - Ryan, M.

N1 - Pagination: 41

PY - 2002

Y1 - 2002

N2 - We examine the role of seller bidding and reserve prices in an infinitely repeated independent-private-value (IPV) ascending-price auction.The seller has a single object that she values at zero.At the end of any auction round, she may either sell to the highest bidder or pass-in the object and hold a new auction next period.New bidders are drawn randomly in each round.The ability to re-auction motivates a notion of reserve price as the option value of retaining the object for re-auctioning.Even in the absence of a mechanism with which to commit to a reserve price, the optimal secret reserve is shown to exceed zero. However, despite the infinite repetition, there may be significant value to the seller from a binding reserve price commitment: the optimal binding reserve is higher than the optimal "secret" reserve, and may be substantially so, even with very patient players.Furthermore, reserve price commitments may even be socially preferable at high discount factors.We also show that the optimal phantom bidding strategy for the seller is revenue-equivalent to a commitment to an optimal public reserve price.

AB - We examine the role of seller bidding and reserve prices in an infinitely repeated independent-private-value (IPV) ascending-price auction.The seller has a single object that she values at zero.At the end of any auction round, she may either sell to the highest bidder or pass-in the object and hold a new auction next period.New bidders are drawn randomly in each round.The ability to re-auction motivates a notion of reserve price as the option value of retaining the object for re-auctioning.Even in the absence of a mechanism with which to commit to a reserve price, the optimal secret reserve is shown to exceed zero. However, despite the infinite repetition, there may be significant value to the seller from a binding reserve price commitment: the optimal binding reserve is higher than the optimal "secret" reserve, and may be substantially so, even with very patient players.Furthermore, reserve price commitments may even be socially preferable at high discount factors.We also show that the optimal phantom bidding strategy for the seller is revenue-equivalent to a commitment to an optimal public reserve price.

KW - auctions

KW - bidding

KW - internet

M3 - Discussion paper

VL - 2002-55

T3 - CentER Discussion Paper

BT - Auctions with Options to Re-auction

PB - Microeconomics

CY - Tilburg

ER -

Grant S, Kajii A, Menezes F, Ryan M. Auctions with Options to Re-auction. Tilburg: Microeconomics. 2002. (CentER Discussion Paper).