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On the core of auctions with externalities: stability and fairness

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  • Seungwon (Eugene) Jeong

Abstract

In auctions with externalities, it is well‐known that the core can be empty, which is undesirable both in terms of stability and “fairness.” Nevertheless, some auction outcome must be chosen. We separate deviations into two types: deviations by paying more and deviations by refusing to pay. In high‐stakes auctions where bidders also care about their reputation, the latter are unlikely to occur, or else can be prevented by legal interventions. In contrast, the former is more undesirable in the sense that the seller and the bidders experience justified envy. We show that the core is nonempty if bidders cannot refuse to pay.

Suggested Citation

  • Seungwon (Eugene) Jeong, 2020. "On the core of auctions with externalities: stability and fairness," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1093-1107, December.
    • Handle: RePEc:bla:randje:v:51:y:2020:i:4:p:1093-1107
    DOI: 10.1111/1756-2171.12351
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    References listed on IDEAS

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    Cited by:

    1. SHINOZAKI, Hiroki, 2023. "Efficiency and strategy-proofness in object allocation problems with payments: Externalities with income effects," Discussion paper series HIAS-E-135, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    2. Sang-Hyun Kim & Chulyoung Kim & Jaeok Park & Jinhyuk Lee, 2022. "First-Price and Second-Price Auctions with Externalities: An Experimental Study," Working papers 2022rwp-199, Yonsei University, Yonsei Economics Research Institute.
    3. Jeong, Seungwon (Eugene) & Lee, Joosung, 2024. "The groupwise-pivotal referral auction: Core-selecting referral strategy-proof mechanism," Games and Economic Behavior, Elsevier, vol. 143(C), pages 191-203.
    4. Chulyoung Kim & Sang-Hyun Kim & Jinhyuk Lee & Jaeok Park, 2023. "Auctions with Externalities: An Experimental Study," Working papers 2023rwp-214, Yonsei University, Yonsei Economics Research Institute.

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