Experimental economics, summary paper Essay Example | Topics and Well Written Essays - 500 words

Experimental economics, summary paper - Essay Example The people bidding do not know the reserve price. Another rule is that the seller cannot bid on himself to avoid prices going up artificially. This practice is unethical and illegal. â€Å"No auction house that values its reputation – and the long run profits its reputation secures – would systematically engage in this practice† (Ashenfelter). The fact that reserve prices are kept secret is considered by many an illogical tactic. This occurs because the most dominant strategy used is to bid up in regards to the true valuation of the object which makes the optimal reserve price identical irrelevant of the reserve price being known or kept a secret. Another variable that must be considered in the English auction system is buy-in rates. Sometimes buy-in rates are high despite the fact that the reserve price is also high. These types of sellers are looking to maximize their profit both in terms of final price and buy-in revenues. Auctions that are able to get a lot o f bidders to buy-in generate greater profits than places with few bidders participating in the game. Low turnout of bidders is an undesirable marketplace. When this occurs many sellers prefer to take their items off the market temporarily to protect themselves against collusion from the buyers in an attempt to depress the price. The highest bidding in an auction is only accepted if the bid ends up exceeding the reserve price.