Risk aversion and optimal reserve prices in first- and second-price auctions
AbstractWe analyze the effects of buyer and seller risk aversion in first- and second-price auctions in the classic setting of symmetric and independent private values. We show that the seller's optimal reserve price decreases in his own risk aversion, and more so in the first-price auction. The reserve price also decreases in the buyers' risk aversion in the first-price auction. Thus, greater risk aversion increases ex post efficiency in both auctions - especially that of the first-price auction. At the interim stage, the first-price auction is preferred by all buyer types in a lower interval, as well as by the seller.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 145 (2010)
Issue (Month): 3 (May)
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Web page: http://www.elsevier.com/locate/inca/622869
First-price auction Second-price auction Risk aversion Reserve price;
Other versions of this item:
- Audrey Hu & Steven A. Matthews & Liang Zou, 2009. "Risk Aversion and Optimal Reserve Prices in First and Second-Price Auctions," PIER Working Paper Archive 09-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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