A Risk Averse Seller in a Continuous Time Auction with a Buyout Option

Timothy Mathews ()

Brazilian Electronic Journal of Economics, 2003, vol. 5, issue 2

Abstract: An auction with a buyout option occurring over continuous time with rules similar to eBay’s “buy it now†option is analyzed. It is shown that a risk averse seller facing risk neutral bidders will choose a buyout price low enough so that the buyout option is exercised with positive probability in equilibrium. Further, when the seller is risk averse and bidders are risk neutral, allowing the seller to offer a buyout option results in an ex ante Pareto improvement, compared to a similar auction without such an option.

Keywords: Auctions; Internet; Buyout Option (search for similar items in EconPapers)
JEL-codes: D44 D8 L86 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (13)

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