A buyout option alleviates implicit collusion in uniform‐price auctions

Toshihiro Tsuchihashi

Managerial and Decision Economics, 2021, vol. 42, issue 5, 1146-1155

Abstract: Demand reduction causes extremely low revenues in uniform‐price auctions, which can be interpreted as implicit collusion among bidders. We model a uniform‐price auction with a buyout option and investigate its potential for alleviating implicit collusion. We focus on the extreme case that yields a revenue of zero with no buyout option. Our main result is that the seller obtains a positive expected revenue unless the buyout price is high. Notably, a bidder will exercise a buyout option even though the bidder is risk neutral; that is, auction aversion is fully endogenous, in contradiction to the findings of previous work.

Date: 2021
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https://doi.org/10.1002/mde.3297

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:42:y:2021:i:5:p:1146-1155

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