Participation and Welfare in Auctions with Default
7 Pages Posted: 7 Jul 2019
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: 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
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