Competition through entry fees between auctions for differentiated objects

This paper considers two competing auctions with objects differentiated according to the random utility framework introduced in Perloff and Salop (1985): bidders privately observe their values for the two objects, and values are ex ante i.i.d. across objects and across bidders. For the case of uniform distribution of values, we show that competition under entry fees is less intense than competition under reserve prices in the sense that sellers are better off, and bidders are worse off when competition takes place with entry fees rather than under reserve prices. The key difference between the two settings is that undercutting under entry fees is less effective as a business stealing tool than under reserve prices. This reduces each seller’s incentive to undercut, and in turn increases sellers’ equilibrium revenues. This result contrasts with the equivalence between reserve prices and entry fees in a standard one-object monopoly auction.