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Auctions with Financial Externalities

  • Emiel Maasland

    ()

  • Sander Onderstal

    ()

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 effect 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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File URL: http://hdl.handle.net/10.1007/s00199-006-0119-1
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 32 (2007)
Issue (Month): 3 (September)
Pages: 551-574

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Handle: RePEc:spr:joecth:v:32:y:2007:i:3:p:551-574
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Web page: http://saet.uiowa.edu/

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Order Information: Web: http://www.springer.com/economics/economic+theory/journal/199/PS2

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  1. 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.
  2. 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.
  3. de Frutos, M. Angeles, 2000. "Asymmetric Price-Benefits Auctions," Games and Economic Behavior, Elsevier, vol. 33(1), pages 48-71, October.
  4. Emiel Maasland & Sander Onderstal, 2007. "Auctions with Financial Externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 551-574, September.
  5. 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.
  6. Tilman Börgers & Christian Dustmann, 2005. "Strange Bids: Bidding Behaviour in the United Kingdom's Third Generation Spectrum Auction," Economic Journal, Royal Economic Society, vol. 115(505), pages 551-578, 07.
  7. George Deltas, 2002. "Determining damages from the operation of bidding rings: An analysis of the post-auction `knockout' sale," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(2), pages 243-269.
  8. Maasland, E. & Onderstal, A.M., 2002. "Optimal Auctions with Financial Externalities," Discussion Paper 2002-21, Tilburg University, Center for Economic Research.
  9. Sudipto Dasgupta & Kevin Tsui, 2004. "Auctions with cross-shareholdings," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 163-194, 07.
  10. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Letters, Elsevier, vol. 80(1), pages 1-7, July.
  11. 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.
  12. repec:dau:papers:123456789/5448 is not listed on IDEAS
  13. 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.
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