The Second Price Auctions With Bidder’s Default And Resale

The auction literature typically models the protection of consumer rights as a kind of limited liability constraints,such as default and resale.However,the existing auction models usually assume that bidders are risk neutral and have no participation costs.Thus,this thesis studies the second-price auctions with default or resale under the assumptions that bidders are risk neutral or risk averse,have common participation cost or private participation costs,and have certain or uncertain valuations.Our work enriches and develops the research on the second-price auctions,and the results obtained have.important practical significance for bidders,seller,and market regulator.This thesis consists of seven chapters,taking on the theoretical study focused on the second-price auctions with default or resale.Chapter 1 is the introduction part.First,we discuss the research background and significance.Then,we expound the research ideas,research methods,and research content and structure.Finally,we point out the contribution and limitations.Chapter 2 is the literature review part,which combs and reviews the literature from the second-price auction,the auctions with default,the auctions with resale,and the auctions with participation costs.Chapter 3 presents the knowledge that will be used in this thesis,mainly including game theory and auction theory.Chapter 4 studies the second-price auctions with default and common participation cost,where bidders are assumed to be risk averse and have uncertain valuations.First,we characterize the equilibrium bidding strategies without and with default.Second,we establish the effects of bidder risk aversion on the equilibrium bid.Third,we look into how bidder risk aversion impacts seller’s expected revenue.Finally,we provide some numerical examples to check our results.Chapter 5 studies the second-price auctions with default and private participation costs,where bidders are assumed to be risk neutral and have uncertain valuations.First,we characterize the cutoff entry equilibria without and with default,examine the existence of multiple equilibria,and identify the sufficient conditions for the uniqueness of the equilibria.Second,we establish the entry effect of default by comparing the equilibria without and with default.Third,we examine the effects of default on social welfare.Finally,we inestigate how default affects the seller’s expected revenue.Chapter 6 studies the second-price auctions with resale and private participation costs,where bidders are assumed to be risk neutral and have certain valuations.First,we introduce the cutoff entry equilibria without resale.Second,we characterize the cutoff entry equilibria with resale,examine the existence of multiple equilibria,and identify the sufficient conditions for the uniqueness of the equilibria.Third,we establish the effects of resale on bidder entry behavior and social welfare.Finally,we examine how the symmetry of equilibria affects the expected revenue of initial seller.Chapter 7 summarizes the main results and points out the directions of future work.The main contribution of this thesis is summarized as follows.(1)It is well known that in the second-price auction with certain valuations,the equilibrium bid(the seller’s expected revenue)is the same in risk-neutral and risk-averse cases.We contribute to the literature by showing that these two results do not hold in the second-price auction without or with default when valuations are uncertain.Specifically,under the assumption that there is no default and valuations are uncertain,we show that both the equilibrium bid and the seller’s expected revenue are smaller when bidders are risk averse than when they are risk neutral,and decrease with risk aversion.However,when a default is possible and valuations are uncertain,we find that greater bidders’ risk aversion leads to a lower equilibrium bid,but may lead to a lower or higher expected revenue.These results sharply contrast with those obtained in the standard second-price sealed-bid auctions.(2)To our best knowledge,this is the first paper to study the effects of default inthe acutions with private participation costs.We show that default encourages bidders to bid more aggressively,increases(decreases)the entry by the lower(higher-)signal bidder,induces the lower ex-ante social welfare.These results provide strong suggestions for bidders and social regulators on considering the effects of default in the auctions with private participation costs.(3)As far as we know,we are the first to study the auctions when resale is via bargaining game and participation costs are private.We show that resale increases(decreases)the entry by the lower-(higher-)signal bidder,and induces the "more symmetric" equilibrium.This result sharply contrasts with the previous results obtained in the case of sequential entry.Furthermore,we show that resale may decrease the social welfare and increase the expected revenue of intial seller,which is contrary to our intuition.These results provide strong suggestions for bidders,initial seller and market regulator on considering the effects of resale in the auctions with private participation costs and bargaining power.