Endogenous entry to security-bid auctions

Takeharu Sogo, Dan Bernhardt, Tingjun Liu

Research output: Contribution to journalArticle

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. (JEL D44).

Original languageEnglish (US)
Pages (from-to)3577-3589
Number of pages13
JournalAmerican Economic Review
Volume106
Issue number11
DOIs
StatePublished - Nov 2016

ASJC Scopus subject areas

  • Economics and Econometrics

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