On the morning of 19th October and 20th October, Professor Audrey Hu, from University of Amsterdam, visited our school and gave two speeches: “A Note on Low Reserve in Auctions” and “Sequential Auctions with General Interdependent Values”. The abstracts are as follows:
It has been a "puzzle" that empirically observed reserve prices in auctions often seem to be lower than received auction theory would predict. In this paper, we address this low reserve puzzle by extending the theory to include both interdependent values and risk averse bidders. In a standard second-price auctions setting, we find that if the bidders are sufficiently risk averse, or if their values are sufficiently interdependent, a profit-maximizing reserve price should be lower than the seller's value for the good. This result is due to the fact that in a second-price auction, value interdependence causes the lowest bid a bidder will ever make to be strictly larger than the reserve price, and this "gap" increases with bidder risk aversion. If the gap is large enough, lowering the reserve price will, paradoxically, increase each bidder's ex ante expected payment to the seller, because it increases the likelihood he will pay the higher second-highest bid rather than the lower reserve price.
Bidders at sequential auctions are typically businesspersons or firms that are also competitors in the same product (service markets), where negative information externalities (NIE) may be common such that increasing a bidder's type decreases his competing bidders' expected values. We provide an analysis of sequential auctions for multiple identical objects with general interdependent values and show that for risk neutral bidders with unit demand and independent types, an NIE environment entails downward price trends that are robust to all sequencing and payment rules. The well-known "declining price anomaly" could, therefore, be evidence of NIE even though revenue equivalence holds ex-ante.