Premium auctions and risk preferences
Theo Offerman and
Journal of Economic Theory, 2011, vol. 146, issue 6, 2420-2439
In a premium auction, the seller offers some “payback”, called premium, to a set of high bidders at the end of the auction. This paper investigates how the performance of such premium tactics is related to the biddersʼ risk preferences. We analyze a two-stage English premium auction model with symmetric interdependent values, in which the bidders may be risk averse or risk preferring. Upon establishing the existence and uniqueness of a symmetric equilibrium, we show that the premium causes the expected revenue to increase in the biddersʼ risk tolerance. A “net-premium effect” is key to this result.
Keywords: Premium auction; English auction; Risk preference; Net-premium effect (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:6:p:2420-2439
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