Optimal reserve prices in sealed-bid auctions with reference effects

The reference effect and loss aversion are incorporated into the buyer’s utility in the symmetric independent private value models of sealed-bid auctions. The buyer’s equilibrium bidding strategy and the seller’s optimal reserve price are derived for the first-price and second-price sealed-bid auctions. In both auction mechanisms, the seller’s optimal reserve price and expected revenue are increasing in the reference point. We compare the seller’s expected revenues as well as the optimal reserve prices in the two auctions. The results show that the seller will set a higher optimal reserve price but obtain lower optimal expected revenue in the second-price auction compared to the first-price auction. Further, we extend the model to the gain-seeking case, and endogenize the reference point as the ex-ante expected price of the item in equilibrium. In contrast to the loss-averse case, the seller will set a lower optimal reserve price but obtain higher optimal expected revenue in the second-price auction compared to the first-price auction if the buyers are gain-seeking. With an endogenous reference point, similar results are obtained in terms of revenue comparison between the two auctions.     

LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT*

We study an auction where two licenses to operate on a new market are sold and winning bidders finance their bids on the debt market. Higher bids imply higher debts which affects product market competition. When debt induces firms to compete more aggressively, retail prices are lower than in a model without debt, as are auction revenues. When debt induces firms to compete less aggressively, retail prices are higher than in a model without debt, and the effect on auction revenues is ambiguous. Net firm profits are always higher than in a model without debt due to endogenous credit rationing.     

The Role of Undisclosed Reserves in English Open Outcry Auctions

This study considers the role that reserve prices may play in residential property auctions. In comparison to much of the previous empirical work, this study has access to undisclosed reserve prices from English auctions. Consistent with theoretical arguments in the auction literature, the results obtained illustrate that while higher reserve prices increase the revenue obtained for the seller, they also reduce the probability of sale. The findings also highlight the importance of auction participation, with the number of individual bidders and the number of bids significant in most specifications.     

Organic price premium or penalty? A comparative market analysis of organic wines from Tuscany

Previous literature suggests that the price of wine is a function of its intrinsic and extrinsic attributes. Studies have examined the price of wines from various wine producing regions using the hedonic price model to determine the correlation between wine attributes and price. However few studies have examined the relationship between organic production or certification and price. This study uses a hedonic pricing model to examine the price premiums associated with organic production and organic certification for Tuscan red wines produced between 2000 and 2008 in both the Italian and American wine markets. Controlling for a variety of wine attributes, the analysis finds that wines produced with organic practices, but not certified as organic and wines certified, but not labeled as organic receive a higher price compared to conventional wine, for wines with low quality ratings. However, as the wine’s quality rating increases, the positive effects of organic practices and certification on price decrease, and for wine with higher quality ratings, organic practices and certification is associated with lower prices relative to otherwise comparable conventional wines.     

Auctions with quantity externalities and endogenous supply

This paper studies the design of license auctions when the number of licenses allocated in the auction determines structure of the post-auction market. I first show that a sequence of conditional reserve prices that specify minimum acceptable bid at each supply level can be used to determine supply endogenously. Then I construct a static auction called multi-dimensional uniform-price auction and a dynamic auction called Walrasian clock auction that allow the auctioneer to condition reserve price on supply and allow bidders to condition bids on supply. I show that both proposed auctions can implement the efficient market structure that maximizes total surplus in the post-auction market in a dominant strategy equilibrium. I next characterize the optimal auction and show that the two proposed auctions can yield the optimal revenue under a sequence of optimal reserve prices.     

Reserve Prices in Repeated Auctions

This paper aims to estimate the effect of imposing a reserve price in repeated auctions of homogeneous items. I model the behavior of impatient bidders who search for the best auction outcome over time. The model is used to develop estimating equations for the bidders’ valuations, and to evaluate the effect of reserve prices on bids and revenue. Using data collected from surplus auctions of personal computer processors, I find economically significant gains from imposing a reserve price. The revenue-maximizing reserve price improves revenue by about 23% for a large subsample of the auctions in the data.     

Empirical Evidence on the Impact of Reserve Prices in English Auctions

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.     

Auctions with contingent payments — An overview

I survey a literature on auctions with contingent payments, that is auctions in which payments are allowed to depend on an ex-post verifiable variable, such as revenues in oil lease auctions. Based on DeMarzo et al. (2005), I describe a partial ranking of auction revenues for auctions that differ in terms of contract forms, pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup. I discuss models that incorporate adverse selection, moral hazard, competition between auctioneers, common values and the sale of multiple units.     

Penny auctions

This paper studies penny auctions, a novel auction format in which every bid increases the price by a small amount, but placing a bid is costly. Outcomes of real-life penny auctions are often surprising. Even when selling cash, the seller may obtain revenue that is much higher or lower than its nominal value, and losers in an auction sometimes pay much more than the winner. This paper characterizes all symmetric Markov-perfect equilibria of penny auctions and studies penny auctions’ properties. The results show that a high variance of outcomes is a natural property of the penny auction format and high revenues are inconsistent with rational risk-neutral participants.     

Catch Animal Spirits in Auction: Evidence from New Zealand Property Market

Following the animal spirits theory proposed by Akerlof and Shiller, this article contributes to behavior economics by investigating the possibility of using auction sales data to capture evidence of irrational exuberance in the housing market. Using the monthly percentages of residential property auction sales for Auckland, Wellington and Christchurch regions in New Zealand from 2006 to 2015, and the exuberance testing method proposed by Phillips, Shi and Yu, we find that animal spirits have been developing in the Auckland housing market since 2013, but not in other regions. When compared to the results based on price‐to‐rent ratios, auction sales provide more meaningful results for identifying market‐wide irrational exuberance at an early stage. The causality test on price‐to‐rent ratios and auction sales volume shows that asset prices and animal spirits influence each other in the short run. In the long run, prices have significant effect on animal spirits, but not vice versa.     

ADVERSE SELECTION IN ELECTRONIC MARKETS: EVIDENCE FROM ONLINE STAMP AUCTIONS

We analyze adverse selection costs in online stamp auctions, based on a comparison of prices on eBay with those of matched stamps at a specialty stamps auction site in the U.S., Michael Rogers, Inc. (MR), which we know a priori has low quality uncertainty. We find that buyer prices are 10–15% lower on eBay as compared to MR, and the price difference, increases with the value of the stamps. Consistent with this adverse selection discount we find that the seller reputation mechanism on eBay has an economically modest, although statistically significant, effect on auction price and probability of sale.     

Position auctions

I analyze the equilibria of a game based on the ad auction used by Google and Yahoo. This auction is closely related to the assignment game studied by Shapley–Shubik, Demange–Gale–Sotomayer and Roth–Sotomayer. However, due to the special structure of preferences, the equilibria of the ad auction can be calculated explicitly and some known results can be sharpened. I provide some empirical evidence that the Nash equilibria of the position auction describe the basic properties of the prices observed in Google's ad auction reasonably accurately.     

Effects of seller’s information disclosure in equity auctions requiring post-auction investment

We consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers. After the auction, the winning bidder decides whether to make follow-up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome. Before the auction, the seller holds private information about the possible returns on that investment and must decide whether to disclose it. Larger equity payments undermine incentives to invest, reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder. Thus, information disclosure makes bids less aggressive in expectation. Expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad.     

PENNIES FROM EBAY: THE DETERMINANTS OF PRICE IN ONLINE AUCTIONS*

This paper presents an exploratory analysis of the determinants of prices in online auctions for collectible United States one‐cent coins at the eBay web site. Starting with an initial data set of 20,000 auctions, we perform regression analysis on a restricted sample of 461 coins for which we obtained estimates of book value. We have three major findings. First, a seller's feedback ratings, reported by other eBay users, have a measurable effect on her auction prices. Negative feedback ratings have a much greater effect than positive feedback ratings do. Second, minimum bids and reserve prices have positive effects on the final auction price. In particular, minimum bids appear only to have a significant effect when they are binding on a single bidder, as predicted by theory. Third, when a seller chooses to have her auction last for a longer period of days, this significantly increases the auction price on average.     

Farm resources,transaction costs and forward integration in agriculture: Evidence from French wine producers

This research aims to understand why French wine producers venture into direct sale to customers instead of selling bulk wine to wine companies. The empirical tests on the French Farm Census confirm the value of both Resource-Based Perspective and Transaction Cost Economics in understanding organizational choices in agriculture and food markets. Because asset specificity in wine trade is low on average, large wine producers have an advantage over smaller ones and so are more likely to venture into direct sale of generic wines. By contrast smaller wine producers are more likely to rely on the bulk wine market, which is less risky for them. In addition our model helps us to understand the effect of the State-sponsored certification of grape and wine quality, the Protected Designation of Origin system. All other things being equal, producers with vineyards of high reputation (PDO) are also more likely to bottle and sell their wines; we guess this is because they wish to capture the value of the PDO reputation, the collective brand name capital owned by the farmers. Finally, saving on transaction cost is only one side of the coin: the most educated wine producers can profitably reinvest their knowledge and capabilities into new activities. These choices have important consequence on the French Wine Supply Chain governance.     

Cartel stability in experimental first-price sealed-bid and English auctions

Using laboratory experiments, we compare the stability of bidding rings in the first-price sealed-bid auction and the English auction in a heterogeneous-value setting. In both a re-matching condition and a fixed-matching condition, we observe that bidding rings are more stable in the English auction than in the first-price sealed-bid auction. In both conditions, the first-price sealed-bid auction dominates the English auction in terms of average revenue and the revenue spread. The English auction outperforms the first-price sealed-bid auction in terms of efficiency.     

Comparing predicted prices in auctions for online advertising

Online publishers sell opportunities to show ads. Some advertisers pay only if their ad elicits a user response. Publishers estimate response rates for ads in order to estimate expected revenues from showing the ads. Then publishers select ads that maximize estimated expected revenue.By taking a maximum among estimates, publishers inadvertently select ads based on a combination of actual expected revenue and inaccurate estimation of expected revenue. Publishers can increase actual expected revenue by selecting ads to maximize a combination of estimated expected revenue and estimation accuracy.     

绿色转型与财政收入增长实证研究——以太原市为例

进行绿色转型,发展循环经济,会影响到财政收入增长。短期看,财政增收主要取决于由于产能减少引起的财政减收和价格上涨引起的财政增收的对比。长期看,新厂商的加入,环境改善会增加财政收入。用1981年～2007年的工业三废排放量和财政收入进行实证分析,发现太原市财政收入增长与工业废水排放量负相关,财政应该设立奖励基金,鼓励企业增加技术改造投资和产业升级,促进财政收入绿色增长。     

Is the ‘Linkage Principle’ Valid? Evidence from the Field

We present field evidence concerning experienced bidders that supports the linkage principle—specifically, the prediction that in affiliated‐values auction environments the expected revenues generated at open‐outcry, ascending‐bid auctions are higher than those under auction formats that reveal less information to participants. Using field data from a large seller of automobiles who experimented with different selling formats, we have found that average revenues were significantly higher under an English auction than under a dynamic Internet auction format that revealed less information to bidders.     

Tax Limits and Housing Markets: Some Evidence at the State Level

Property tax limitations, as well as other tax and expenditure restrictions on state and local governments in the United States, date back to the late 19th century. A surge in property tax limitation legislation occurred in the late 1970s and early 1980s, and its effects on government revenue, school financing and educational quality have been studied extensively. However, there is surprisingly little literature on how property tax limits affect housing markets. For the first time, we examine the impacts of property tax limitations on housing growth, in addition to their impacts on housing prices. Using state‐level data over 23 years, we find that property tax limits increase housing prices (indexes) by approximately 2%. Property tax limits appear to have little impact on the growth in the housing stock, but education spending limits reduce the number of building permits by over 6%. Our indirect evidence suggests that the number of housing units may grow when property tax limits are accompanied by increases in other own‐source revenues to state government.