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Bidding among Friends and Enemies

Author

Listed:
  • David Ettinger

    (C.E.R.A.S.-E.N.P.C., C.N.R.S., France)

Abstract

We consider an auction setting in which potential buyers, even if they fail to obtain the good, care about the price paid by the winner. We study the impact of these price-externalities on the first-price auction and the second-price auction in a symmetric information framework. First, we consider situations in which bidders care about the price paid independently from the identity of the winner. We prove that the first-price auction is not affected by this kind of price-externalities while the second-price auction is. In broader specifications, we observe though that the first-price auction can be affected by the presence of such price-externalities. In any case, in comparison with the first-price auction, the second-price auction exacerbates the effects of price-externalities whatever their types. Therefore, there is no revenue equivalence between the two auction formats.

Suggested Citation

  • David Ettinger, 2003. "Bidding among Friends and Enemies," Working Papers 2003.23, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2003.23
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    Cited by:

    1. Hu, Youxin & Kagel, John & Xu, Xiaoshu & Ye, Lixin, 2013. "Theoretical and experimental analysis of auctions with negative externalities," Games and Economic Behavior, Elsevier, vol. 82(C), pages 269-291.
    2. Bos, Olivier, 2016. "Charity auctions for the happy few," Mathematical Social Sciences, Elsevier, vol. 79(C), pages 83-92.
    3. Konrad, Kai A., 2006. "Silent interests and all-pay auctions," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 701-713, July.
    4. repec:eee:ijrema:v:26:y:2009:i:4:p:324-331 is not listed on IDEAS

    More about this item

    Keywords

    Auctions; revenue; allocation; externalities; toeholds; budget-constraints;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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