Auctions with Financial Externalities

Emiel Maasland and Sander Onderstal

No 2003.30, Working Papers from Fondazione Eni Enrico Mattei

Abstract: We study sealed-bid auctions with financial externalities, i.e., auctions in which losers’ utilities depend on how much the winner pays. In the unique symmetric equilibrium of the first-price sealed-bid auction (FPSB), larger financial externalities result in lower bids and in a lower expected revenue. The unique symmetric equilibrium of the second-price sealed-bid auction (SPSB) reveals ambiguous effects. We further show that a resale market does not have an effect on the equilibrium bids and that FPSB yields a lower expected revenue than SPSB. With a reserve price, we find an equilibrium for FPSB that involves pooling at the reserve price. For SPSB we derive a necessary and sufficient condition for the existence of a weakly separating equilibrium, and give an expression for the equilibrium.

Keywords: Auctions; financial externalities; reserve price; resale market (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2003-03
New Economics Papers: this item is included in nep-mic
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Auctions with Financial Externalities (2007)
Working Paper: Auctions with Financial Externalities (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2003.30

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