Auctions with Financial Externalities

E. Maasland, A.M. Onderstal

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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
Number of pages25
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper


  • Auctions
  • financial externalities
  • reserve price
  • resale market


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