Endogenous Entry to Security-Bid Auctions
American Economic Review
vol. 106,
no. 11, November 2016
(pp. 3577-89)
Abstract
We endogenize entry to a security-bid auction, where participation is costly and bidders must decide given their private valuations whether to participate. We first consider any minimum reserve security-bid of a fixed expected value that weakly exceeds the asset's value when retained by the seller. DeMarzo, Kremer, and Skrzypacz (2005) establish that with a fixed number of bidders, auctions with steeper securities yield the seller more revenues. Counterintuitively, we find that auctions with steeper securities also attract more entry, further enhancing the revenues from such auctions. We then establish that with optimal reserve securities, auctions with steeper securities always yield higher expected revenues.Citation
Sogo, Takeharu, Dan Bernhardt, and Tingjun Liu. 2016. "Endogenous Entry to Security-Bid Auctions." American Economic Review, 106 (11): 3577-89. DOI: 10.1257/aer.20151538Additional Materials
JEL Classification
- D44 Auctions