Premium auctions and risk preferences

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

8 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)2420-2439
Journal / PublicationJournal of Economic Theory
Volume146
Issue number6
Online published12 Oct 2011
Publication statusPublished - Nov 2011
Externally publishedYes

Abstract

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 bidders' 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 bidders' risk tolerance. A "net-premium effect" is key to this result.

Research Area(s)

  • English auction, Net-premium effect, Premium auction, Risk preference

Citation Format(s)

Premium auctions and risk preferences. / Hu, Audrey; Offerman, Theo; Zou, Liang.

In: Journal of Economic Theory, Vol. 146, No. 6, 11.2011, p. 2420-2439.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review