Risk aversion and optimal reserve prices in first- and second-price auctions

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

37 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)1188-1202
Journal / PublicationJournal of Economic Theory
Volume145
Issue number3
Online published18 Feb 2010
Publication statusPublished - May 2010
Externally publishedYes

Abstract

We analyze the effects of buyer and seller risk aversion in first- and second-price auctions in the classic setting of symmetric and independent private values. We show that the seller's optimal reserve price decreases in his own risk aversion, and more so in the first-price auction. The reserve price also decreases in the buyers' risk aversion in the first-price auction. Thus, greater risk aversion increases ex post efficiency in both auctions - especially that of the first-price auction. At the interim stage, the first-price auction is preferred by all buyer types in a lower interval, as well as by the seller.

Research Area(s)

  • First-price auction, Reserve price, Risk aversion, Second-price auction

Citation Format(s)

Risk aversion and optimal reserve prices in first- and second-price auctions. / Hu, Audrey; Matthews, Steven A.; Zou, Liang.

In: Journal of Economic Theory, Vol. 145, No. 3, 05.2010, p. 1188-1202.

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