- A theory of premium auctions
- Number of pages
- Amsterdam: Faculteit Economie en Bedrijfskunde
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
In premium auctions, sellers stimulate competition by rewarding a number of
highest bidders. Previous theoretical investigations considered special cases where
premium auctions could be expected to perform well. This paper provides a theory
of the English premium auction for the canonical case in which risk averse or risk
seeking bidders with symmetric private values compete. We show that for a given
number of bidders the expected revenue in the premium auction increases in the
bidders' degree of risk tolerance. A surprising result is that the premium auction is
more attractive to risk averse bidders. A "zero-expected-utility-for-premium effect"
is key to the results.
Keywords: premium auction, English auction, risk averse, risk seeking, pre-
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.