We present evidence from 260,000 online auctions of second-hand cars to identify the impact of public reserve prices on auction outcomes. We exploit multiple discontinuities in the relationship between reserve prices and vehicle characteristics to present causal regression-discontinuity estimates of reserve price impacts. We find 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.
Centre for microdata methods and practice