Abstract
We study auctions with financial externalities, i.e., auctions in which losers care about how much the winner pays. In the first-price auction, larger financial externalities result in a lower expected price; in the second-price auction, the effect is ambiguous. Although the expected price in the second-price auction may increase if financial externalities increase, the seller is not able to gain more revenue by guaranteeing the losers a fraction of the auction revenue. With a reserve price, we find that both auctions may have pooling at the reserve price. This finding suggests that identical bids need not be a signal of collusion, in contrast to what is sometimes argued in anti-trust cases.
Similar content being viewed by others
References
Angeles de Frutos M. (2000) Asymmetric price-benefits auctions. Games Econ. Behav. 33, 48–71
Benoît J.-P., Krishna V. (2001) Multiple-object auctions with budget constrained bidders. Rev. Econ. Stud. 68, 155–179
Börgers T., Dustmann C. (2005) Strange bids: bidding behaviour in the united kingdom’s third generation spectrum auction. Econ. J. 505, 551–578
Bulow J., Huang M., Klemperer P. (1999) Toeholds and takeovers. J. Pol. Econ. 107, 427–454
Comanor W.S., Schankerman M.A. (1976) Identical bids and cartel behavior. Bell J. Econ. 7, 281–286
Cramton P., Gibbons R., Klemperer P. (1987) Dissolving a partnership efficiently. Econometrica 55, 615–632
Dasgupta S., Tsui K. (2004) Auctions with cross-shareholdings. Econ. Theory 24, 163–194
Das Varma G. (2002) Standard auctions with identity-dependent externalities. Rand. J. Econ. 33, 689–708
Deltas G. (2002) Determining damages from the operation of bidding rings: an analysis of the post-auction ‘knockout’ sale. Econ. Theory 19, 243–269
Engelbrecht-Wiggans R. (1994) Auctions with price-proportional benefits to bidders. Games Econ. Behav. 6, 339–346
Engers M., McManus B. (2004) Charity auctions. University of Virginia, Mimeo
Ettinger D. (2003a) Bidding among friends and enemies. FEEM Working Paper No. 23.2003
Ettinger D. (2003b) Efficiency in auctions with crossholdings. Econ. Lett. 80, 1–7
Ettinger D. (2003c) Takeovers, toeholds, and deterrence. University College, London, Mimeo
Goeree J.K., Maasland E., Onderstal S., Turner J.L. (2005) How (not) to raise money. J. Pol. Econ. 113, 897–918
Goeree J.K., Offerman T. (2004) The Amsterdam auction. Econometrica 72, 281–294
Graham D.M., Marshall R.C. (1987) Collusive bidder behavior at single-object second-price and English auctions. J. Pol. Econ. 95, 1217–1239
Jehiel P., Moldovanu B. (1996) Strategic nonparticipation. Rand J. Econ. 27, 84–98
Jehiel P., Moldovanu B. (2000) Auctions with downstream interaction among buyers. Rand J. Econ. 31, 768–791
Jehiel P., Moldovanu B., Stacchetti E. (1996) How (not) to sell nuclear weapons. Am. Econ. Rev. 86, 814–829
Jehiel P., Moldovanu B., Stacchetti E. (1999) Multidimensional mechanism design for auctions with externalities. J. Econ. Theory 85, 258–283
Kittsteiner T. (2003) Partnerships and double auctions with interdependent valuations. Games Econ. Behav. 44, 54–76
Maasland, E., Onderstal, S. Optimal auctions with financial externalities. CentER discussion paper 2002-21, Tilburg University (2002)
McAfee R.P., McMillan J. (1992) Bidding rings. Am. Econ. Rev. 82, 579–599
Milgrom P.R., Weber R.J. (1982) A theory of auctions and competitive bidding. Econometrica 50, 1089–1122
Morgan J. (2004) Dissolving a partnership (un)fairly. Econ. Theory 23, 909–923
Myerson R.B. (1981) Optimal auction design. Math. Oper. Res. 6, 58–73
United States v. Chas. Pfizer Co., Inc., 217 F. Supp. 199 (1963)
Van Damme E. (1992). Fair division under asymmetric information. In: Selten R. (eds). Rational Interaction – essays in Honor of John C. Harsanyi. Springer, Berlin Heidelberg New York, pp. 121–144
Author information
Authors and Affiliations
Corresponding author
Additional information
We gratefully acknowledge financial support from the Dutch National Science Foundation (NWO 510.010.501 and NWO-VICI 453.03.606). For valuable discussions and comments, we would like to thank Eric van Damme, Jacob Goeree, Thomas Kittsteiner, Marta Kolodziejczyk, seminar participants at Tilburg University, Humboldt University Berlin, and National University of Singapore, and audiences at ESEM 2001 in Lausanne, and the FEEM 2002 conference in Milan on auctions and market design. The suggestions of an anonymous referee of this Journal greatly improved the article. The usual disclaimer applies.
Rights and permissions
About this article
Cite this article
Maasland, E., Onderstal, S. Auctions with Financial Externalities. Economic Theory 32, 551–574 (2007). https://doi.org/10.1007/s00199-006-0119-1
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00199-006-0119-1