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Bidder Welfare In An Auction With A Buyout Option

Author

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  • TIMOTHY MATHEWS

    (Department of Economics, California State University-Northridge, 18111 Nordhoff St., Northridge, CA 91330-8374, USA)

Abstract

A buyout option enhances an auction by allowing a bidder to purchase the item at a pre-specified price (instead of attempting to obtain the item by way of auction). A comparison is made between the ex ante welfare of bidders in an auction with a buyout option to a traditional auction with no such option. The impact on bidder welfare is shown to depend upon the distribution from which bidder valuations are drawn. In comparison to a traditional auction with no buyout option, when a buyout option is in place either: all bidders are weakly better off (in which case the option results in an ex ante Pareto improvement) or bidders with "relatively high valuations" are worse off.

Suggested Citation

  • Timothy Mathews, 2006. "Bidder Welfare In An Auction With A Buyout Option," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 595-612.
    • Handle: RePEc:wsi:igtrxx:v:08:y:2006:i:04:n:s0219198906001132
    DOI: 10.1142/S0219198906001132
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    References listed on IDEAS

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    1. Kirkegaard, René & Overgaard, Per Baltzer, "undated". "Buy-Out Prices in Online Auctions: Multi-Unit Demand," Economics Working Papers 2003-4, Department of Economics and Business Economics, Aarhus University.
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    Citations

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    Cited by:

    1. William E. Gryc, 2020. "Revenue in first-price auctions with a buy-out price and risk-averse bidders," Journal of Economics, Springer, vol. 129(2), pages 103-142, March.
    2. Zhen Li & Ching-Chung Kuo, 2013. "Design of discrete Dutch auctions with an uncertain number of bidders," Annals of Operations Research, Springer, vol. 211(1), pages 255-272, December.
    3. Olarte, Rafael & Haghani, Ali, 2018. "Introducing and testing a game-theoretic model for a lottery-based metering system in Minneapolis, United States," Transport Policy, Elsevier, vol. 62(C), pages 63-78.
    4. Li, Zhen & Kuo, Ching-Chung, 2011. "Revenue-maximizing Dutch auctions with discrete bid levels," European Journal of Operational Research, Elsevier, vol. 215(3), pages 721-729, December.

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    More about this item

    Keywords

    Auctions; Internet; Buyout Option; Bidder Welfare; JEL Classification: D44; JEL Classification: L86; JEL Classification: D6;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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