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Reserve price effects in auctions: estimates from multiple RD designs

Authors: Syngjoo Choi , Lars Nesheim and Imran Rasul
Date: 01 June 2011
Type: cemmap Working Paper,

Abstract

We present evidence from 260,000 online auctions of second-hand cars to identify the impact of public reserve prices on auction outcomes. To establish causality, we exploit multiple discontinuities in the relationship between reserve prices and vehicle characteristics to present RD estimates of reserve price impacts. Guided by auction theory, in our first set of results we find that an increase in reserve price decreases the number of bidders, increases the likelihood the object remains unsold, and increases expected revenue conditional on sale. We then combine these estimates to calibrate the reserve price effect on the auctioneer’s ex ante expected revenue. This reveals the auctioneer’s reserve price policy to be locally optimal. Our final set of results provide novel evidence on reserve price effects to shed light on the auction environment. We find that an increase in reserve price: (i) decreases the number of potential bidders as identified through individual web browsing histories; (ii) leads to only more experienced and historically successful bidders still entering the auction; (iii) the characteristics of actual winners are less sensitive to the reserve price than those of the average bidder, suggesting auction winners are not the marginal entrant. These novel margins suggest these auctions are characterized by endogenous bidder entry and bidder asymmetry

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