On the Sub-optimality of Entry Fees in Auctions With Entry

We study a variation of Myerson’s (1981) model in which we allow for uncertainty about the number of bidders. In our set-up, an appropriate reserve price in a standard auction maximizes the auctioneer’s expected revenue. However, entry fees can be optimal only under some special conditions. Basically, there must be some homogeneity in bidders’ beliefs about the number of bidders and the auctioneer must know, to some extent, these beliefs.