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Large common value auctions with risk averse bidders

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  • Murto, Pauli
  • Välimäki, Juuso

Abstract

We analyze large symmetric auctions with conditionally i.i.d. common values and risk averse bidders. Our main result characterizes the asymptotic equilibrium price distribution for the first- and second-price auctions. As an implication, we show that with constant absolute risk aversion (CARA), the second-price auction raises significantly more revenue than the first-price auction. While this ranking seems robust in numerical analysis also outside the CARA specification, we show by counterexamples that the result does not generalize to all risk averse utility functions.

Suggested Citation

  • Murto, Pauli & Välimäki, Juuso, 2015. "Large common value auctions with risk averse bidders," Games and Economic Behavior, Elsevier, vol. 91(C), pages 60-74.
    • Handle: RePEc:eee:gamebe:v:91:y:2015:i:c:p:60-74
    DOI: 10.1016/j.geb.2015.03.015
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    References listed on IDEAS

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    Cited by:

    1. Benjamin Balzer & Antonio Rosato, 2018. "Expectations-Based Loss Aversion in Common-Value Auctions: Extensive vs. Intensive Risk," Working Paper Series 50, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Stephan Lauermann & Asher Wolinsky, 2021. "A Common-Value Auction with State-Dependent Participation," ECONtribute Discussion Papers Series 103, University of Bonn and University of Cologne, Germany.
    3. Benjamin Balzer & Antonio Rosato, 2021. "Expectations-Based Loss Aversion in Auctions with Interdependent Values: Extensive vs. Intensive Risk," Management Science, INFORMS, vol. 67(2), pages 1056-1074, February.
    4. Leoni, Patrick & Lundtofte, Frederik, 2017. "Information, stochastic dominance and bidding: The case of Treasury auctions," Economics Letters, Elsevier, vol. 153(C), pages 80-82.

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    More about this item

    Keywords

    Large auctions; Risk aversion; Common values;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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