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Bidder Welfare In An Auction With A Buyout Option

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Author Info

  • TIMOTHY MATHEWS

    ()
    (Department of Economics, California State University-Northridge, 18111 Nordhoff St., Northridge, CA 91330-8374, USA)

Abstract

A buyout option enhances an auction by allowing a bidder to purchase the item at a pre-specified price (instead of attempting to obtain the item by way of auction). A comparison is made between the ex ante welfare of bidders in an auction with a buyout option to a traditional auction with no such option. The impact on bidder welfare is shown to depend upon the distribution from which bidder valuations are drawn. In comparison to a traditional auction with no buyout option, when a buyout option is in place either: all bidders are weakly better off (in which case the option results in an ex ante Pareto improvement) or bidders with "relatively high valuations" are worse off.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 08 (2006)
Issue (Month): 04 ()
Pages: 595-612

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Handle: RePEc:wsi:igtrxx:v:08:y:2006:i:04:p:595-612

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Related research

Keywords: Auctions; Internet; Buyout Option; Bidder Welfare; JEL Classification: D44; JEL Classification: L86; JEL Classification: D6;

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Cited by:
  1. Grebe, Tim & Ivanova-Stenzel, Radosveta & Kröger, Sabine, 2006. "How eBay Sellers set “Buy-it-now†prices - Bringing The Field Into the Lab," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 181, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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