Auctions With Ceilings

In symmetric common value auctions where bidders differ ex-post in information quality, a seller may benefit from imposing a ceiling on allowable bids. By reducing the winner's curse facing poorly informed bidders, a ceiling encourages them to bid aggressively. This may reduce information rents earned by better informed bidders, yielding the seller higher expected revenues compared to selling the object in a standard ascending auction or at a fixed posted price. Such a ceiling may be explicit (a firm commitment not to accept bids above the ceiling) or implicit (a credible threat not to honor the outcome if anyone bids higher than the ceiling). Either situation can be interpreted as one where the object is offered for sale at a fixed price or the best offer; or one where the seller uses an auction but modifies the object by contractually specifying a right to buy back the object from the winner.