SESSION B

Reserve prices and more bidders

This session explores the implications for bidding if the auctioneer announces a minimum (or “reserve”) price. For a bid to be accepted it must at least equal this price. As long as the reserve price is above each buyer’s minimum value, the seller runs the risk of not selling the item. However, at least under some conditions, this risk is more than offset by the higher bids that high value buyers are forced to make in order to beat players bidding near the reserve price.

Session B also adds additional programmed bidders. Intuitively, with this more vigorous competition, buyers will bid more. This is indeed the case.

Both of these modifications to the basic game are explored for the case of uniformly distributed values as well as bell shaped distributions of values.

Once a game has been played enough, the instructor may wish to show a group of players what theory predicts for each game. The password is the same as for Session A and is available upon request.