An equilibrium analysis of a core-selecting package auction with reserve prices

Abstract

This study analyzes the equilibrium of a core-selecting package auction under incomplete information. The ascending proxy auction of Ausubel and Milgrom (Front Theor Econ 1:1–42, 2002) is considered in a stylized environment with two goods, two local bidders, and one global bidder. Local bidders shade bids in the equilibrium because of the free-riding incentive. We examine the effect of reserve prices. We show that a reserve price for individual goods increases the equilibrium local bids, whereas they may be decreased by a reserve price for the package of goods. A flexible non-monotonic reserve price rule can improve allocative efficiency as well as seller revenue in the equilibrium.