BIDDER WELFARE IN AN AUCTION WITH A BUYOUT OPTION

Timothy Mathews ()
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Timothy Mathews: Department of Economics, California State University-Northridge, 18111 Nordhoff St., Northridge, CA 91330-8374, USA

International Game Theory Review (IGTR), 2006, vol. 08, issue 04, 595-612

Abstract: A buyout option enhances an auction by allowing a bidder to purchase the item at a pre-specified price (instead of attempting to obtain the item by way of auction). A comparison is made between the ex ante welfare of bidders in an auction with a buyout option to a traditional auction with no such option. The impact on bidder welfare is shown to depend upon the distribution from which bidder valuations are drawn. In comparison to a traditional auction with no buyout option, when a buyout option is in place either: all bidders are weakly better off (in which case the option results in an ex ante Pareto improvement) or bidders with "relatively high valuations" are worse off.

Keywords: Auctions; Internet; Buyout Option; Bidder Welfare; JEL Classification: D44; JEL Classification: L86; JEL Classification: D6 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0219198906001132

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