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Endogenous entry to security-bid auctions

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Sogo, Takeharu, Bernhardt, Dan and Liu, Tingjun (2016) Endogenous entry to security-bid auctions. The American Economic Review, 106 (11). pp. 3577-3589. doi:10.1257/aer.20151538

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Official URL: http://doi.org/10.1257/aer.20151538

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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.

Item Type: Journal Article
Divisions: Faculty of Social Sciences > Economics
Journal or Publication Title: The American Economic Review
Publisher: American Economic Association
ISSN: 0002-8282
Official Date: 2016
Dates:
DateEvent
2016Published
1 November 2016Available
14 June 2016Accepted
Volume: 106
Number: 11
Page Range: pp. 3577-3589
DOI: 10.1257/aer.20151538
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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