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How Risk Sharing may Enhance Efficiency of English Auctions

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  • Audrey Hu
  • Theo Offerman
  • Liang Zou

Abstract

English auctions are known to be ex post efficient under various circumstances. However, they are inefficient ex ante for risk†averse seller and bidders. Our analysis of the English premium auction (EPA) reveals that, while maintaining ex post efficiency, awarding a premium to the highest two bidders makes the auction more attractive to all risk†averse bidders. This result is remarkably general, as it holds with possible interdependent bidder valuations and affiliated types. When bidders exhibit independent types, the EPA can also benefit a risk†averse seller and therefore strictly improve ex ante, or interim, Pareto efficiency of the English auction.

Suggested Citation

  • Audrey Hu & Theo Offerman & Liang Zou, 2018. "How Risk Sharing may Enhance Efficiency of English Auctions," Economic Journal, Royal Economic Society, vol. 128(610), pages 1235-1256, May.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:610:p:1235-1256
    DOI: 10.1111/ecoj.12439
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    Cited by:

    1. Sander Onderstal, 2020. "Premium auctions in the field," Review of Economic Design, Springer;Society for Economic Design, vol. 24(1), pages 39-63, June.
    2. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    3. Stojadinović, Nikola & Bošković, Branislav & Trifunović, Dejan & Janković, Slađana, 2019. "Train path congestion management: Using hybrid auctions for decentralized railway capacity allocation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 129(C), pages 123-139.
    4. Dejan Trifunovic, 2019. "Heuristic and Equilibrium Strategies in Premium Auctions," Proceedings of International Academic Conferences 9411761, International Institute of Social and Economic Sciences.
    5. Vasserman, Shoshana & Watt, Mitchell, 2021. "Risk aversion and auction design: Theoretical and empirical evidence," International Journal of Industrial Organization, Elsevier, vol. 79(C).

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