Absolute auctions and secret reserve prices: Why are they used?

Absolute auctions, i.e. auctions with a zero public reserve price, and auctions withsecret reserve prices are frequently used by various auction sites. However, it is hardto find a rationale for these formats. By introducing the possibility that buyers differin their understanding of how the participation rate varies with the auction format,and how reserve prices are distributed when secret, we show in a competitive environ-ment that these auction formats may endogenously emerge. We also analyze how theobjects of various quality sort into the different auction formats in equilibrium and thecognitive characteristics of the buyers who participate in the various auctions, therebyoffering a range of testable predictions.