The Virtues of Price Discrimination
the winners and losers from an auction system aren’t who you think. Auctions don’t favor the deep-pocketed compared to the small guys. Exactly the opposite. The marginal consumer is priced out of the market when a seller eschews an auction because then he must keep prices high. When a seller switches to an auction he lowers his reserve price and now the marginal consumer has a chance to buy at those low prices.
Pointer from Tyler Cowen.
I believe that this is a special case of a general theorem about monopoly, which is that price discrimination gets you closer to the socially optimal quantity of output. Note, however, that the distributional effects may or may not be what you would like.
Remember what I tell my students: Price Discrimination Explains Everything.