Optimal Reservation Prices and Superior Information in Auctions with Common-Value Elements: Evidence from Field Data

Abstract

In an auction the seller selects a reservation price to maximize expected revenue. Theory suggests that in some cases the seller can increase his expected revenue by raising his reservation price above his true valuation. We test this notion using a set of auctions on eBay where an active outside dealer market allows us to approximate the seller's true valuation. We find that auctions with reservation prices marginally above the seller's true valuation tend to result in higher revenue. We also find empirical support for the argument that bidders with superior information are less susceptible to the winner's curse.

Keywords: reservation prices, superior information, common-values, internet auctions

JEL Classification: D44, C93