Does Bidder Participation Really Matter? A Comment on Bulow and Klemperer (1996)

Abstract

When the set of potential bidders is fixed, we show that the failure of the seller to invite all of them does not necessarily lower the revenue, especially when the resale market is efficient. In the model, the bidding strategies of the included bidders take the resale value into consideration, making the auction among them competitive enough to generate the same expected revenue as an auction among all potential bidders. Moreover, included bidders are not better off than excluded bidders. Soliciting extra bidders is thus by and large inconsequential as long as current bidders are aware of their existence, and the optimal auction could be achieved with a reserve price independent of the numbers of included and excluded bidders. The neutrality results leave the question of what determines bidder participation open for future investigation.

Keywords: Auctions versus Negotiations, Efficient Resale, Competitive Middlemen, Optimal Auction, Bidder Participation Neutrality

JEL Classification: D44, G34