Timber Sale Auctions with Random Reserve Prices

This paper analyses first-price sealed-bid auctions of standing timber organized by the French Forest Service, Office National des Forests (ONF). A particular feature of these auctions is that they are held with random reserve prices. We consider an auction model with a random reserve price within the independent private value paradigm. After establishing the identification of the model, we estimate the underlying bidders’ private values distribution by using a simple two-step nonparametric procedure. This procedure allows the computation of the winners’ informational rents as well as the optimal reserve price. We then simulate a first-price sealed-bid auction with the optimal announced reserve price. Empirical results show that the optimal reserve price allows the ONF to extract more of bidders’ willingnesses-to-pay. Moreover, our results show that, while sales do not vary much, profits for the ONF would significantly increase though less timber would be sold.