Bundling decisions in multi-objects auctions with optimal reserve prices

This paper investigates a seller's bundling decision when he/she sells multiple objects to two potential buyers through auctions in which he/she can optimally set reserve prices. We show how the optimal reserve prices in bundled/separate auctions and the seller's bundling decisions are affected by the correlations of the valuations across buyers and objects. Interestingly, when each object's valuations are sufficiently negatively correlated across buyers, the seller's revenue is higher under unbundling than under bundling. The result is in contrast with that obtained by Palfrey (1983), who showed that, without considering optimal reserve prices, the seller's revenue is always higher under bundling regardless of correlations across either buyers or objects when there are two buyers.