Optimal reserve prices in auctions boost revenue and drive competition.
The article explores how auctions with a reserve price work when there is a strong bidder among multiple bidders. The researchers build on previous models to include more bidders and reserve prices in both first-price and second-price auctions. They find that with the right reserve price, the first-price auction can bring in as much or even more revenue than the second-price auction. This can help explain why different auction formats generate varying revenues in real-life situations.