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A Risk Averse Seller in a Continuous Time Auction with a Buyout Option

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Author Info
Timothy Mathews (California State University-Northridge)

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Abstract

An auction with a buyout option occurring over continuous time with rules similar to eBay’s “buy it now†option is analyzed. It is shown that a risk averse seller facing risk neutral bidders will choose a buyout price low enough so that the buyout option is exercised with positive probability in equilibrium. Further, when the seller is risk averse and bidders are risk neutral, allowing the seller to offer a buyout option results in an ex ante Pareto improvement, compared to a similar auction without such an option.

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File URL: http://www.beje.decon.ufpe.br/v5n2/mathews.pdf
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Publisher Info
Article provided by Department of Economics, Universidade Federal de Pernambuco in its journal Brazilian Electronic Journal of Economics.

Volume (Year): 5 (2003)
Issue (Month): 2 (January)
Pages:
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Handle: RePEc:bej:issued:v:5:y:2002:i:2:mathews

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Related research
Keywords: Auctions Internet Buyout Option

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Timothy Mathews, 2005. "Meaning Of 'More Risk Averse' When Preferences Are Over Mean And Variance," Manchester School, University of Manchester, vol. 73(1), pages 75-91, 01. [Downloadable!] (restricted)
  2. Borch, Karl, 1969. "A Note on Uncertainty and Indifference Curves," Review of Economic Studies, Blackwell Publishing, vol. 36(105), pages 1-4, January. [Downloadable!] (restricted)
  3. Timothy Mathews & Brett Katzman, 2006. "The role of varying risk attitudes in an auction with a buyout option," Economic Theory, Springer, vol. 27(3), pages 597-613, 04. [Downloadable!] (restricted)
  4. Feldstein, Martin S, 1969. "Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection," Review of Economic Studies, Blackwell Publishing, vol. 36(105), pages 5-12, January. [Downloadable!] (restricted)
  5. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
  6. Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicholas Shunda, 2007. "Auctions with a Buy Price: The Case of Reference-Dependent Preferences," Working papers 2007-42, University of Connecticut, Department of Economics. [Downloadable!]
  2. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2006. "How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab," Discussion Papers 181, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  3. Kirkegaard, René & Per Baltzer Overgaard, 2005. "Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions," Economics Working Papers 2005-17, School of Economics and Management, University of Aarhus. [Downloadable!]
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This page was last updated on 2008-11-26.

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