This paper examines whether reserve prices impact the discount on private equity placements (PEPs). Using a sample of auction-based PEPs in China, we find that reserve price discounts are positively associated with bid (offer) price discounts. This inference holds after executing several robustness checks. As extra analyses reveal, the documented impact is ascribed to bidders anchoring on reserve prices. The positive association also depends on bidder identity and anchor-target compatibility. Our evidence ultimately shows that investor wealth benefits from such anchoring biases. Altogether, these findings demonstrate that reserve prices induce bidder undervaluation, thereby resulting in lower offer prices.

This paper examines how auction design can unintentionally facilitate bidder collusion in land market. Departing from the dominant view that attributes low land concession revenues to corruption, we highlight how features of auction structure enable bidder-side collusion, suppressing sale prices. Using a dataset of land auctions from 15 Chinese cities (2006–2016), we find that two-stage (listing) auctions are significantly more susceptible to collusion than one-stage formats. Empirical evidence shows that sales concluding at the (secret) reserve price occur disproportionately in two-stage auctions, even after controlling for land and market characteristics. We argue that the transparency and sequencing of two-stage auctions, while designed to enhance fairness, inadvertently reduce monitoring costs and facilitate tacit bidder coordination. Our findings underscore the need to jointly consider auction format and reserve price policy in designing land sales to enhance market efficiency and mitigate collusion risks.