Participation and Welfare in Auctions with Default

7 Pages Posted: 7 Jul 2019

See all articles by Joosung Lee

Joosung Lee

SKKU

Daniel Z. Li

Durham University Business School

Date Written: July 3, 2019

Abstract

Consumer protection may induce some socially undesirable outcomes in a competitive bidding environment. In an auction with costly participation, we show that the possibility of default may cause social welfare loss through two channels. One is the possibility of no trade when a default occurs, and the other is the under participation of bidders in equilibrium. We also provide closed-form solutions to the default probability, the expected winning rent and social welfare.

Keywords: Auction; Default; Participation Cost; Welfare Loss

JEL Classification: D44; D82

Suggested Citation

Lee, Joosung and Li, Daniel Z., Participation and Welfare in Auctions with Default (July 3, 2019). Available at SSRN: https://ssrn.com/abstract=3414655 or http://dx.doi.org/10.2139/ssrn.3414655

Joosung Lee

SKKU ( email )

School of Economics
25-2 Sungkyunkwan-ro
Seoul, Seoul 03063
Korea, Republic of (South Korea)

HOME PAGE: http://https://sites.google.com/site/joosungecon/

Daniel Z. Li (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

HOME PAGE: http://danielzli.weebly.com/

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