A Risk Averse Seller in a Continuous Time Auction with a Buyout Option
An auction with a buyout option occurring over continuous time with rules similar to eBayâ€™s â€œbuy it nowâ€ option is analyzed. It is shown that a risk averse seller facing risk neutral bidders will choose a buyout price low enough so that the buyout option is exercised with positive probability in equilibrium. Further, when the seller is risk averse and bidders are risk neutral, allowing the seller to offer a buyout option results in an ex ante Pareto improvement, compared to a similar auction without such an option.
Volume (Year): 5 (2003)
Issue (Month): 2 (January)
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- Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, vol. 81(1), pages 25-52, 01.
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