The Effect of Different Reserve Prices on Auction Outcomes

22 Pages Posted: 27 Jul 2009

See all articles by Nathan Barrymore

Nathan Barrymore

University of Maryland - R.H. Smith School of Business

Yaron Raviv

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: July 9, 2009

Abstract

To ensure that their item does not sell below a minimum value, auction sellers can set a reserve price or insert their own 'shill' bids. We present results from a controlled experiment in which we auctioned identical $20 Starbucks gift cards in order to test different price floors’ effects on sale prices and bidding activity. We find that all price floors decrease the number of bids and the number of bidders in an auction. Higher price floors increase the average sale price, but compared to a control group the difference is only significant at a binding level. In contrast, seller profits are maximized by setting no price floor, but we predict that the advantage of price floors will intensify with higher value items or items in thinner markets. We explain our results using the anchoring effect, selection effects and the eBay setup.

Keywords: Auctions, Reserve Price, Shill Bidding.

JEL Classification: D44

Suggested Citation

Barrymore, Nathan and Raviv, Yaron, The Effect of Different Reserve Prices on Auction Outcomes (July 9, 2009). Robert Day School of Economics and Finance Research Paper No. 2009-13, Available at SSRN: https://ssrn.com/abstract=1432283 or http://dx.doi.org/10.2139/ssrn.1432283

Nathan Barrymore (Contact Author)

University of Maryland - R.H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

HOME PAGE: http://nathanbarrymore.com

Yaron Raviv

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7305 (Phone)

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