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Bid Revisions in the Buy-Price English Auction

Author

Listed:
  • Tilman Klumpp

    (Department of Economics, Indiana University)

  • Martin Ranger

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

We examine ascending auctions with independent private values and a buyout option. The buyout option gives each buyer the opportunity to end the auction prematurely and acquire the object for a fixed price. We fully characterize the unique symmetric equilibrium and show that buyers with sufficiently high valuations exercise the buyout option with positive probability in equilibrium. The threshold exercise price depends on a bidder’s valuation as well as on the bid history up to this point. Thus, as the auction progresses buyers will frequently revise their thresholds. Our analysis therefore extends recent work on the buy-price English auction which assumes that bidders must commit ex-ante to an exercise threshold. In particular, thresholds are higher in our equilibrium than in previous models. If bidders are risk averse, however, the seller can still find a buyout price which increases the auction’s revenue compared to the standard English auction.

Suggested Citation

  • Tilman Klumpp & Martin Ranger, 2006. "Bid Revisions in the Buy-Price English Auction," Working Papers 2006-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2006-06
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    More about this item

    Keywords

    ascending auction; risk-averse bidders; buyout option; “Buy it now”;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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