The Effect of a Right-of-First-Refusal Clause in a First-Price Auction with Heterogeneous Risk-Averse Bidders

Karine Brisset, François Cochard and François Maréchal

Journal of Institutional and Theoretical Economics (JITE), 2020, vol. 176, issue 3, 526-548

Abstract: Considering the sale of an asset by a first-price sealed-bid auction, we analyze the effect of a right-of-first-refusal (ROFR) clause, under which a buyer can match the highest bidder. When the buyers do not exactly know their competitors' degree of risk aversion, we compare their optimal bidding strategies with and without an ROFR. Then, when the seller does not exactly know each buyer's degree of risk aversion, we determine some sufficient conditions under which an ROFR cannot increase the seller's expected revenue. However, when she knows that information and when two buyers compete, we show that granting an ROFR can increase her expected revenue.

Keywords: right of first refusal; first-price auction; heterogeneous risk aversion (search for similar items in EconPapers)
JEL-codes: D44 D81 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1628/jite-2020-0034

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