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Abstract:
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In this paper we investigate the nature of the effect of reserve prices on the auction outcome. In particular, we develop a semi-parametric model with the following properties: a) all continuous covariates that affect the auction outcome are allowed to enter non-parametrically, but additively, without imposing any a priori rigid structure, b) number of bidders is allowed to be endogenous and c) the response variable can be censored. In estimating such model, we assume that sufficient instruments are available for the number of bidders' variable and the censoring points are known. Using five identical items from eBay, and applying the proposed model, our study is able to disentangle the separate effects of censoring, endogeneity and non-linearity. Such a result will guide future auction researchers how to model these key empirical regularities of internet auctions.
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