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Auctions with heterogeneous entry costs
Author(s) -
Moreno Diego,
Wooders John
Publication year - 2011
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/j.1756-2171.2011.00135.x
Subject(s) - revenue , common value auction , microeconomics , reservation price , value (mathematics) , economics , economic surplus , homogeneous , business , private information retrieval , monetary economics , finance , mathematics , market economy , statistics , combinatorics , welfare
If bidders have independent private values and homogeneous entry costs, a first‐ or second‐price auction with a reserve price equal to the seller’s value maximizes social surplus and seller revenue. We show that if entry costs are heterogeneous and private information, then the revenue‐maximizing reserve price is above the seller’s value, a positive admission fee (and a reserve price equal to the seller’s value) generates more revenue, and an entry cap combined with an admission fee generates even more revenue. Social surplus and seller revenue may either increase or decrease in the number of bidders, but they coincide asymptotically.