Auctions with Financial Externalities

E. Maasland, A.M. Onderstal

Research output: Working paperDiscussion paperOther research output

247 Downloads (Pure)

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 e¤ect 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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages25
Volume2002-22
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-22

    Fingerprint

Keywords

  • Auctions
  • financial externalities
  • reserve price
  • resale market

Cite this

Maasland, E., & Onderstal, A. M. (2002). Auctions with Financial Externalities. (CentER Discussion Paper; Vol. 2002-22). Microeconomics.