Premium auctions and risk preferences

Audrey Hu; Theo Offerman; Liang Zou

doi:10.1016/j.jet.2011.10.005

Premium auctions and risk preferences

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

Overview

11 Scopus Citations

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Author(s)

Audrey Hu
Theo Offerman
Liang Zou

Detail(s)

Original language	English
Pages (from-to)	2420-2439
Journal / Publication	Journal of Economic Theory
Volume	146
Issue number	6
Online published	12 Oct 2011
Publication status	Published - Nov 2011
Externally published	Yes

Link(s)

DOI	DOI https://doi.org/10.1016/j.jet.2011.10.005 Final Published version
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Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-82155166340&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(43b938fa-4809-4973-9854-bc671d0e065f).html

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.