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Auctions with Financial Externalities

Author

Listed:
  • Maasland, E.

    (Tilburg University, Center For Economic Research)

  • Onderstal, A.M.

Abstract

We study sealed-bid auctions with financial externalities, i.e., auctions in which losers’ utilities depend on how much the winner pays. In the unique symmetric equilibrium of the first-price sealed-bid auction (FPSB), larger financial externalities result in lower bids and in a lower expected revenue. The unique symmetric equilibrium of the second-price sealed-bid auction (SPSB) reveals ambiguous effects. We further show that a resale market does not have an effect on the equilibrium bids and that FPSB yields a lower expected revenue than SPSB. With a reserve price, we find an equilibrium for FPSB that involves pooling at the reserve price. For SPSB we derive a necessary and sufficient condition for the existence of a weakly separating equilibrium, and give an expression for the equilibrium.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Maasland, E. & Onderstal, A.M., 2002. "Auctions with Financial Externalities," Discussion Paper 2002-22, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:f9ffd48b-e33c-4443-895b-0b5cd46dbbca
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    References listed on IDEAS

    as
    1. Maasland, E. & Onderstal, A.M., 2002. "Optimal Auctions with Financial Externalities," Other publications TiSEM f69f3ee8-a267-4e09-82b1-9, Tilburg University, School of Economics and Management.
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    3. Emiel Maasland & Sander Onderstal, 2007. "Auctions with Financial Externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 551-574, September.
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    More about this item

    Keywords

    Auctions; financial externalities; reserve price; resale market;
    All these keywords.

    JEL classification:

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

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