Auctions with financial externalities

Emiel Maasland () and Sander Onderstal ()

No 22, Discussion Paper from Tilburg University, Center for Economic Research

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.

JEL-codes: D44 (search for similar items in EconPapers)
Date: 2002
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Related works:
Working Paper: Auctions with Financial Externalities (2003)
Journal Article: Auctions with Financial Externalities (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:200222

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