Common Values and Low Reserve Prices |
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| Authors: | Daniel Quint |
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| Affiliation: | Department of Economics, University of Wisconsin, Madison, Wisconsin, U.S.A. |
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| Abstract: | I show that the benefit of a high reserve price in a common‐values ascending auction is lower than in the observationally equivalent private values setting. Put another way, when bidders have common values, empirical estimation based on a private‐values model will overstate the value of a high reserve price. Via numerical examples, I show this same ranking typically applies to the level of the optimal reserve price as well, and often to the benefit of any reserve price, not just high ones. With common values, the optimal reserve can even be below the seller's valuation, which is impossible with private values. |
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