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Unobserved heterogeneity and reserve prices in auctions
Author(s) -
Roberts James W.
Publication year - 2013
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12038
Subject(s) - common value auction , econometrics , database transaction , economics , microeconomics , value (mathematics) , fraction (chemistry) , set (abstract data type) , monotonic function , realization (probability) , computer science , statistics , mathematics , mathematical analysis , chemistry , organic chemistry , programming language
This article shows how reserve prices can be used to control for unobserved object heterogeneity to identify and estimate the distribution of bidder values in auctions. Reserve prices are assumed to be monotonic in the realization of unobserved heterogeneity, but not necessarily set optimally. The model is estimated using transaction prices from a used car auction platform to show that the platform enables sellers to capture a large fraction of the potential value from selling their vehicle. Individual sellers benefit mostly from access to a large set of buyers, but the magnitude depends on accounting for unobserved heterogeneity.