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How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions
Author(s) -
McAfee R. Preston,
Quan Daniel C.,
Vincent Daniel R.
Publication year - 2002
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00183
Subject(s) - common value auction , bidding , real estate , upper and lower bounds , microeconomics , set (abstract data type) , economics , complete information , mathematical economics , computer science , mathematics , finance , mathematical analysis , programming language
In a general auction model with affiliated signals, common components to valuations and endogenous entry, we compute the equilibrium bidding strategies and outcomes, and derive a lower bound on the optimal reserve price. This lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods. We illustrate how to compute the lower bound using data from real estate auctions.