Common Value Auctions with Buy Prices

Quazi Shahriar ()
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Quazi Shahriar: Department of Economics, San Diego State University

No 31, Working Papers from San Diego State University, Department of Economics

Abstract: Risk aversion and impatience of either the bidders or the seller have been utilized to explain the popularity of buy prices in private value auctions. This paper, using a pure common value framework, models auctions with “temporary” buy prices. We characterize equilibrium bidding strategies in a general setup and then analyze a seller’s incentive to post a buy price when there are two bidders. We find that, when bidders are either risk neutral or risk averse, a risk neutral seller has no incentive to post a buy price. But when the seller is risk averse, a suitably chosen buy price can raise his expected payoff when the bidders are either risk neutral or risk averse. This provides an explanation for the popularity of buy prices in online common value auctions.

New Economics Papers: this item is included in nep-gth and nep-upt
Date: 2008-06
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