Auctions with a profit sharing contract

Vineet Abhishek, Bruce Hajek and Steven R. Williams

Games and Economic Behavior, 2013, vol. 77, issue 1, 247-270

Abstract: An auction is used to sell a resource that is then developed by the winning buyer to generate a profit. Two forms of payment are considered: (i) charging the winning buyer a one-time payment; (ii) charging an initial payment followed by a profit sharing contract (PSC) that divides the realized profit between the seller and the winning buyer. A symmetric interdependent values model with a risk neutral seller and either risk averse or risk neutral buyers is considered, along with the second price and English auctions. The properties of those PSCs in which either positive profits or both profits and losses are split according to a fixed fraction are studied. The sellerʼs expected revenue is shown to be larger in a class of general PSCs with nontrivial profit sharing than in an auction with only a one-time payment.

Keywords: Selling a resource; Auction; Profit sharing contracts; Principal–agent relationship (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825612001558
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:77:y:2013:i:1:p:247-270

DOI: 10.1016/j.geb.2012.10.007

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().