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The buy price in auctions with discrete type distributions

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  • Inami, Yusuke
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    Abstract

    This paper considers second-price, sealed-bid auctions with a buy price where bidders' types are discretely distributed. We characterize all equilibria in which bidders whose types are less than the buy price bid their own valuations. Budish and Takeyama (2001) analyze the two-bidder, two-type framework. They show that if bidders are risk-averse, then the seller can obtain a higher expected revenue from the auction with a certain buy price than from the auction without a buy price. We extend their revenue improvement result to the n-bidder, two-type framework. In case of three or more types, however, bidders' risk aversion is not a sufficient condition for a revenue improvement. We point out that even if bidders are risk-averse, the seller cannot always obtain a higher expected revenue from the auctions with a buy price.

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    Bibliographic Info

    Article provided by Elsevier in its journal Mathematical Social Sciences.

    Volume (Year): 61 (2011)
    Issue (Month): 1 (January)
    Pages: 1-11

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    Handle: RePEc:eee:matsoc:v:61:y:2011:i:1:p:1-11

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    Web page: http://www.elsevier.com/locate/inca/505565

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    Keywords: Auction Buy price Risk aversion;

    References

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    1. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    2. Hidvegi, Zoltan & Wang, Wenli & Whinston, Andrew B., 2006. "Buy-price English auction," Journal of Economic Theory, Elsevier, vol. 129(1), pages 31-56, July.
    3. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847, October.
    4. Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-55, February.
    5. Yongmin Chen & Robert W. Rosenthal, 1994. "On the Use of Ceiling-Price Commitments by Monopolists," Papers 0045, Boston University - Industry Studies Programme.
    6. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, vol. 38(1), pages 9-39, January.
    7. 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.
    8. 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.
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