IDEAS home Printed from https://ideas.repec.org/p/pen/papers/10-001.html
   My bibliography  Save this paper

Risk Aversion and Optimal Reserve Prices in First and Second-Price Auctions, Second Version

Author

Listed:
  • Audrey Hu

    () (Tinbergen Institute University of Amsterdam)

  • Steven A. Matthews

    () (Department of Economics, University of Pennsylvania)

  • Liang Zou

    () (Faculty of Economics and Business, University of Amsterdam)

Abstract

This paper analyzes the effects of buyer and seller risk aversion in first and second-price auctions. The setting is the classic one of symmetric and independent private values, with ex ante homogeneous bidders. However, the seller is able to optimally set the reserve price. In both auctions the seller’s optimal reserve price is shown to decrease in his own risk aversion, and more so in the first-price auction. Thus, greater seller risk aversion increases the ex post efficiency of both auctions, and especially that of the first-price auction. The seller’s optimal reserve price in the first-price, but not in the second-price, auction decreases in the buyers’ risk aversion. Thus, greater buyer risk aversion also increases the ex post efficiency of the first but not the second-price auction. At the interim stage, the first-price auction is preferred by all buyer types in a lower interval, as well as by the seller.

Suggested Citation

  • Audrey Hu & Steven A. Matthews & Liang Zou, 2009. "Risk Aversion and Optimal Reserve Prices in First and Second-Price Auctions, Second Version," PIER Working Paper Archive 10-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Jan 2010.
  • Handle: RePEc:pen:papers:10-001
    as

    Download full text from publisher

    File URL: http://economics.sas.upenn.edu/system/files/working-papers/10-001.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Federico Zincenko, 2016. "Nonparametric Estimation of First-Price Auctions with Risk-Averse Bidders," Working Paper 5855, Department of Economics, University of Pittsburgh.
    2. Hu, Audrey & Zou, Liang, 2015. "Sequential auctions, price trends, and risk preferences," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 319-335.
    3. Brunner, Christoph & Hu, Audrey & Oechssler, Jörg, 2014. "Premium auctions and risk preferences: An experimental study," Games and Economic Behavior, Elsevier, vol. 87(C), pages 467-484.
    4. Bettina Klose & Paul Schweinzer, 2012. "Auctioning risk: The all-pay auction under mean-variance preferences," Discussion Papers 12/32, Department of Economics, University of York.
    5. Hu, Audrey, 2011. "How bidder's number affects optimal reserve price in first-price auctions under risk aversion," Economics Letters, Elsevier, vol. 113(1), pages 29-31, October.
    6. Moreno, Diego & Wooders, John, 2017. "Reserve prices in auctions with entry when the seller is risk-averse," Economics Letters, Elsevier, vol. 154(C), pages 6-9.
    7. Audrey Hu & Theo Offerman & Liang Zou, 2014. "How Risk Sharing may enhance Efficiency in English Auctions," Tinbergen Institute Discussion Papers 14-015/I, Tinbergen Institute.
    8. Hu, Audrey & Offerman, Theo & Zou, Liang, 2011. "Premium auctions and risk preferences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2420-2439.
    9. Kim, Dong-Hyuk, 2015. "Nonparametric estimation of utility function in first-price sealed-bid auctions," Economics Letters, Elsevier, vol. 126(C), pages 101-106.
    10. Audrey Hu & Liang Zou, 2014. "Sequential Auctions, Price Trends, and Risk Preferences," Tinbergen Institute Discussion Papers 14-139/I, Tinbergen Institute.
    11. Simon Loertscher & Andras Niedermayer, 2012. "Fee-Setting Mechanisms: On Optimal Pricing by Intermediaries and Indirect Taxation," Department of Economics - Working Papers Series 1162, The University of Melbourne.
    12. Nathalie Gimenes, 2014. "Econometrics of Ascending Auctions by Quantile Regression," Working Papers, Department of Economics 2014_25, University of São Paulo (FEA-USP).
    13. repec:the:publsh:1824 is not listed on IDEAS

    More about this item

    Keywords

    first-price auction; second-price auction; risk aversion; reserve price;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pen:papers:10-001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini). General contact details of provider: http://edirc.repec.org/data/deupaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.