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Premium auctions and risk preferences

  • Hu, Audrey
  • Offerman, Theo
  • Zou, Liang
Registered author(s):

    In a premium auction, the seller offers some “payback”, called premium, to a set of high bidders at the end of the auction. This paper investigates how the performance of such premium tactics is related to the biddersʼ risk preferences. We analyze a two-stage English premium auction model with symmetric interdependent values, in which the bidders may be risk averse or risk preferring. Upon establishing the existence and uniqueness of a symmetric equilibrium, we show that the premium causes the expected revenue to increase in the biddersʼ risk tolerance. A “net-premium effect” is key to this result.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022053111001384
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    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 146 (2011)
    Issue (Month): 6 ()
    Pages: 2420-2439

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    Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2420-2439
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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