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Auctions with Financial Externalities

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  • Maasland, E.
  • Onderstal, A.M.

    (Tilburg University, Center for Economic Research)

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

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-22.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200222

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Keywords: Auctions; financial externalities; reserve price; resale market;

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  1. de Frutos, M. Angeles, 2000. "Asymmetric Price-Benefits Auctions," Games and Economic Behavior, Elsevier, vol. 33(1), pages 48-71, October.
  2. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Emiel Maasland & Sander Onderstal, 2003. "Auctions with Financial Externalities," Working Papers 2003.30, Fondazione Eni Enrico Mattei.
  4. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June.
  5. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Letters, Elsevier, vol. 80(1), pages 1-7, July.
  11. Jean-Pierre Benoit & Vijay Krishna, 1998. "Multiple-Object Auctions with Budget Constrained Bidders," Game Theory and Information 9805001, EconWPA, revised 26 Jul 1999.
  12. Maxim Engers & Brian McManus, 2007. "Charity Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 953-994, 08.
  13. Maasland, E. & Onderstal, A.M., 2002. "Optimal Auctions with Financial Externalities," Discussion Paper 2002-21, Tilburg University, Center for Economic Research.
  14. ehiel, Philippe & Benny Moldovanu & Ennio Stacchetti, 1994. "How (not) to sell nuclear weapons," Discussion Paper Serie B 288, University of Bonn, Germany.
  15. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  17. 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.
  18. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Papers from University Paris Dauphine 123456789/5448, Paris Dauphine University.
  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. Van Damme, E., 1990. "Fair Division Under Asymmetric Information," Papers 9070, Tilburg - Center for Economic Research.
  21. Sudipto Dasgupta & Kevin Tsui, 2004. "Auctions with cross-shareholdings," Economic Theory, Springer, vol. 24(1), pages 163-194, 07.
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