Optimal Multi-Object Auctions with Risk Averse Buyers

47 Pages Posted: 18 Apr 2008

See all articles by Cagri S. Kumru

Cagri S. Kumru

Australian National University (ANU)

Hadi Yektas

Antalya International University

Date Written: 2008

Abstract

We analyse the optimal auction of multiple non-identical objects when buyers are risk averse. We show that the auction formats that yield the maximum revenue in the risk neutral case are no longer optimal. In particular, selling the goods independently does not maximize the seller's revenue. We observe that the seller's incentive for bundling arises solely due to the risk aversion of the buyers. The optimal auction which remains weakly efficient has the following properties: The seller perfectly insures all buyers against the risk of losing the objects(s) for which they have high valuation. While the buyers who have high valuation for both objects are compensated if they do not win either object, the buyers who have low valuation for both objects incur a positive payment to the seller in the same event.

Keywords: Multi-object auctions, optimal auctions, multi-dimensional screening, bundling

JEL Classification: D44, D81

Suggested Citation

Kumru, Cagri S. and Yektas, Hadi, Optimal Multi-Object Auctions with Risk Averse Buyers (2008). UNSW Australian School of Business Research Paper No. 2008 ECON 03, Available at SSRN: https://ssrn.com/abstract=1121123 or http://dx.doi.org/10.2139/ssrn.1121123

Cagri S. Kumru (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Hadi Yektas

Antalya International University ( email )

Üniversite Cad. No:2
Döşemealtı, 07190
Turkey

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