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  4. November 2016
  5. Endogenous Entry to Security-Bid Auctions

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Endogenous Entry to Security-Bid Auctions

  • Takeharu Sogo
  • Dan Bernhardt
  • Tingjun Liu
American Economic Review
vol. 106, no. 11, November 2016
(pp. 3577–89)
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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.20151538

Additional Materials

JEL Classification

  • D44 Auctions