On the Core of Auctions with Externalities: Stability and Fairness

21 Pages Posted: 14 Mar 2020 Last revised: 16 Apr 2020

Date Written: February 1, 2020

Abstract

In auctions with externalities, it is well-known that the core can be empty, which is undesirable both in terms of stability and fairness. Nevertheless, some auction outcome must be chosen. We separate deviations into two types: deviations by paying more and deviations by refusing to pay. In high-stakes auctions where bidders also care about their reputation, the latter are unlikely to occur, or else can be prevented by legal interventions. In contrast, the former is more undesirable in the sense that the seller and the bidders experience justified envy. We show that the core is nonempty if bidders cannot refuse to pay.

Keywords: core, auction, externalities, justified envy, core-selecting mechanism

JEL Classification: C71, D44, D62

Suggested Citation

Jeong, Seungwon (Eugene), On the Core of Auctions with Externalities: Stability and Fairness (February 1, 2020). Available at SSRN: https://ssrn.com/abstract=3522262 or http://dx.doi.org/10.2139/ssrn.3522262

Seungwon (Eugene) Jeong (Contact Author)

University of Bristol ( email )

The Priory Road Complex
Bristol, BS8 1TU
United Kingdom

HOME PAGE: http://eugenejeong.com

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