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How auctioneers set reserve prices in procurement auctions

Shachat, Jason; Tan, Lijia

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Lijia Tan


We introduce a behavioral model that effectively predicts auctioneers’ reserve choice patterns in English clock auctions across varying reserve price formats (whether reserve prices are set ex-ante or ex-post auction events), number of bidders and the distribution of suppliers’ costs. In a two-parameter model, which we call Subjective Conditional Probability (SCP), auctioneers have subjective judgement of conditional probabilities. We theoretically show that the SCP explains two intuitive, but sub-optimal, reserve price setting patterns. It predicts and provides rationalizations for ex-ante reserve prices that decrease in the number of bidders and ex-post reserve prices that increase in the realized auction price. We conduct two experiments; one with a uniform cost distribution and another with a left-skewed cost distribution. We validate the SCP model internally and externally by comparing it to a wide range of models, including reduced form linear regression, risk aversion, anticipated regret model, and subjective probability judgement via in-sample and out-of-sample predictions. We conclude that the SCP has strong external validity across a variety of procurement environments.


Shachat, J., & Tan, L. (2022). How auctioneers set reserve prices in procurement auctions. European Journal of Operational Research, 304(2), 709-728.

Journal Article Type Article
Acceptance Date Apr 19, 2022
Online Publication Date Sep 7, 2022
Publication Date 2022
Deposit Date May 11, 2022
Publicly Available Date Apr 25, 2023
Journal European Journal of Operational Research
Print ISSN 0377-2217
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 304
Issue 2
Pages 709-728
Public URL


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