The role of varying risk attitudes in an auction with a buyout option
type: Item
instance of: scholarly article
title: The role of varying risk attitudes in an auction with a buyout option
zbMATH Open document ID: 1108.91028
author: Timothy Mathews
author: Brett Katzman
published in: Economic Theory
publication date: 2006-03-21T00:00:00Z
review text: The authors analyze a second price auction with a buyout option. A buyout option allows a bidder to purchase the item being auctioned at a pre-specified buyout price, instead of attempting to obtain the item through the traditional auction procedure. Such options are available in the internet auctions. The model presented in the paper considers a situation in which bidders with independent private valuation drawn from a common continuous distribution attempt to acquire a single object. The central problem is the impact of varying attitudes toward risk by a seller facing risk neutral bidders. The results are as follows. A risk neutral seller will choose a buyout price high enough so that an option is never exercised, whereas the risk averse seller choice will be the price low enough so that the option is exercised with positive probability. Under the assumptions that a seller is risk averse, bidders are risk neutral and their valuations are drawn from a convex distribution function, the authors prove that allowing the seller to offer a buyout option results in a Pareto improvement, in comparison to a sealed bid second price auction.
Mathematics Subject Classification ID: 91B26
Mathematics Subject Classification ID: 91A80
zbMATH DE Number: 5013649
zbMATH Keywords: auctions
zbMATH Keywords: internet auctions
zbMATH Keywords: buyout option
zbMATH Keywords: game
zbMATH Keywords: equilibrium
zbMATH Keywords: Pareto improvement
reviewed by: Małgorzata Doman
MaRDI profile type: Publication
full work available at URL: s00199-004-0571-8
OpenAlex ID: W2006706046
DOI: 10.1007/S00199-004-0571-8
description: scientific article; zbMATH DE number 5013649