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Auctions with a profit sharing contract

Author

Listed:
  • Abhishek, Vineet
  • Hajek, Bruce
  • Williams, Steven R.

Abstract

An auction is used to sell a resource that is then developed by the winning buyer to generate a profit. Two forms of payment are considered: (i) charging the winning buyer a one-time payment; (ii) charging an initial payment followed by a profit sharing contract (PSC) that divides the realized profit between the seller and the winning buyer. A symmetric interdependent values model with a risk neutral seller and either risk averse or risk neutral buyers is considered, along with the second price and English auctions. The properties of those PSCs in which either positive profits or both profits and losses are split according to a fixed fraction are studied. The sellerʼs expected revenue is shown to be larger in a class of general PSCs with nontrivial profit sharing than in an auction with only a one-time payment.

Suggested Citation

  • Abhishek, Vineet & Hajek, Bruce & Williams, Steven R., 2013. "Auctions with a profit sharing contract," Games and Economic Behavior, Elsevier, vol. 77(1), pages 247-270.
  • Handle: RePEc:eee:gamebe:v:77:y:2013:i:1:p:247-270
    DOI: 10.1016/j.geb.2012.10.007
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    References listed on IDEAS

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    Cited by:

    1. Abhishek, Vineet & Hajek, Bruce & Williams, Steven R., 2015. "On bidding with securities: Risk aversion and positive dependence," Games and Economic Behavior, Elsevier, vol. 90(C), pages 66-80.
    2. repec:eee:mateco:v:75:y:2018:i:c:p:57-66 is not listed on IDEAS

    More about this item

    Keywords

    Selling a resource; Auction; Profit sharing contracts; Principal–agent relationship;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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