Optimal Multi-Object Auctions with Risk Averse Buyers
We analyze the optimal auction of multiple non-identical objects when buyers are risk averse. We show that the auction formats that yield the maximum revenue in the risk neutral case are no longer optimal. In particular, selling the goods independently does not maximize the seller's revenue. We observe that seller's incentive for bundling arises solely due to the risk aversion of the buyers. The optimal auction which remains weakly efficient has the following properties: The seller perfectly insures all buyers against the risk of losing the object(s) for which they have high valuation. While the buyers who have high valuation for both objects are compensated if they do not win either object, the buyers who have low valuation for both objects incur a positive payment to the seller in the same event.
|Date of creation:||09 Mar 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
- Vasiliki Skreta, 2005.
"Optimal Auction Design for Multiple Objects with Externalities,"
UCLA Economics Online Papers
345, UCLA Department of Economics.
- Vasiliki Skreta & Nicolas Figueroa, 2004. "Optimal Auction Design For Multiple Objects with Externalities," Econometric Society 2004 Latin American Meetings 287, Econometric Society.
- Vasiliki Skreta & Nicolas Figueroa, 2005. "Optimal Auction Design For Multiple Objects with Externalities," 2005 Meeting Papers 866, Society for Economic Dynamics.
- Border, Kim C, 1991. "Implementation of Reduced Form Auctions: A Geometric Approach," Econometrica, Econometric Society, vol. 59(4), pages 1175-87, July.
- Armstrong, Mark, 2000. "Optimal Multi-object Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 455-81, July.
- Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
- Matthews, Steven A., 1983.
"Selling to risk averse buyers with unobservable tastes,"
Journal of Economic Theory,
Elsevier, vol. 30(2), pages 370-400, August.
- Steven A. Matthews, 1981. "Selling to Risk Averse Buyers with Unobservable Tastes," Discussion Papers 480S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
- Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
- Eso, Peter, 2005. "An optimal auction with correlated values and risk aversion," Journal of Economic Theory, Elsevier, vol. 125(1), pages 78-89, November.
- Domenico Menicucci, 2001.
"Optimal two-object auctions with synergies,"
ICER Working Papers - Applied Mathematics Series
18-2001, ICER - International Centre for Economic Research.
- Levin, Jonathan, 1997. "An Optimal Auction for Complements," Games and Economic Behavior, Elsevier, vol. 18(2), pages 176-192, February.
- Avery, Christopher & Hendershott, Terrence, 2000. "Bundling and Optimal Auctions of Multiple Products," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 483-97, July.
- Kihlstrom, Richard E & Mirman, Leonard J, 1981. "Constant, Increasing and Decreasing Risk Aversion with Many Commodities," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 271-80, April.
- repec:cup:cbooks:9780521551847 is not listed on IDEAS
- Asplund, Marcus, 2002.
"Risk-averse firms in oligopoly,"
International Journal of Industrial Organization,
Elsevier, vol. 20(7), pages 995-1012, September.
- Asplund, Marcus, 1995. "Risk-Averse Firms in Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 69, Stockholm School of Economics, revised 21 Sep 1999.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7575. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.