Document Type

Discussion Paper

Publication Date

4-2026

CFDP Number

2512

CFDP Pages

65

Journal of Economic Literature (JEL) Code(s)

C91, D44, D47

Abstract

A soft-floor auction asks bidders to accept an opening price to participate in a second-price auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free second-price auction. Efficiency improves because a soft floor allows for a lower hard reserve, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice.

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