Bidding Behaviors in eBay Auctions: Secret Reservation Price and Endogenous Entry
Abstract
This paper analyzes the secret reservation price in eBay auctions. Under the assumptions of secret and public reservation price, the bidders choose the optimal bidding function and the seller selects equilibrium reservation price. This model argues that the choice of secret reservation price is rational for the seller, as they can generate higher revenue in certain conditions. It predicts that, under endogenous entry, secret reservation price leads to higher revenue since it attracts more bidders to the auction. This effect is more noticeable for luxury goods. However, secret and public reservation prices generate identical revenue for the seller if entry is exogenous. Furthermore, the results are supported by numerous recent empirical works.Downloads
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