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Auctions with Financial Externalities

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  • Emiel Maasland

    ()

  • Sander Onderstal

    ()

Abstract

We study sealed-bid auctions with financial externalities, i.e., auctions in which losers' utilities depend on how much the winner pays.In the unique symmetric equilibrium of the first-price sealed-bid auction (FPSB), larger financial externalities result in lower bids and in a lower expected revenue.The unique symmetric equilibrium of the second-price sealed-bid auction (SPSB) reveals ambiguous effects.We further show that a resale market does not have an e¤ect on the equilibrium bids and that FPSB yields a lower expected revenue than SPSB.With a reserve price, we find an equilibrium for FPSB that involves pooling at the reserve price.For SPSB we derive a necessary and sufficient condition for the existence of a weakly separating equilibrium, and give an expression for the equilibrium.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 32 (2007)
Issue (Month): 3 (September)
Pages: 551-574

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Handle: RePEc:spr:joecth:v:32:y:2007:i:3:p:551-574

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Related research

Keywords: Auctions; Financial externalities; Reserve price; C72; D44;

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References

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  1. Sudipto Dasgupta & Kevin Tsui, 2004. "Auctions with cross-shareholdings," Economic Theory, Springer, vol. 24(1), pages 163-194, 07.
  2. Jean-Pierre Benoit & Vijay Krishna, 1998. "Multiple-Object Auctions with Budget Constrained Bidders," Game Theory and Information 9805001, EconWPA, revised 26 Jul 1999.
  3. Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  4. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  5. de Frutos, M. Angeles, 2000. "Asymmetric Price-Benefits Auctions," Games and Economic Behavior, Elsevier, vol. 33(1), pages 48-71, October.
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  8. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Maasland, E. & Onderstal, A.M., 2002. "Auctions with Financial Externalities," Discussion Paper 2002-22, Tilburg University, Center for Economic Research.
  10. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September.
  11. Jehiel, Phillipe & Moldovanu, Benny, 1997. "Auctions with Downstream Interaction among Buyers," Sonderforschungsbereich 504 Publications 97-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  12. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 897-926, August.
  13. Van Damme, E., 1990. "Fair Division Under Asymmetric Information," Papers 9070, Tilburg - Center for Economic Research.
  14. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  16. Maasland, E. & Onderstal, A.M., 2002. "Optimal Auctions with Financial Externalities," Discussion Paper 2002-21, Tilburg University, Center for Economic Research.
  17. George Deltas, 2002. "Determining damages from the operation of bidding rings: An analysis of the post-auction `knockout' sale," Economic Theory, Springer, vol. 19(2), pages 243-269.
  18. Börgers, Tilman & Dustmann, Christian, 2001. "Strange Bids: Bidding Behaviour in the United Kingdom's Third Generation Spectrum Auction," CEPR Discussion Papers 3072, C.E.P.R. Discussion Papers.
  19. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
  20. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Letters, Elsevier, vol. 80(1), pages 1-7, July.
  21. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Papers from University Paris Dauphine 123456789/5448, Paris Dauphine University.
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