Premium auctions and risk preferences
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
|Journal / Publication||Journal of Economic Theory|
|Online published||12 Oct 2011|
|Publication status||Published - Nov 2011|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-82155166340&origin=recordpage|
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.
- English auction, Net-premium effect, Premium auction, Risk preference