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  3. American Economic Journal: Microeconomics
  4. November 2022
  5. Deposit Requirements in Auctions

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Deposit Requirements in Auctions

  • Xiaogang Che
  • Tong Li
  • Jingfeng Lu
  • Xiaoyong Zheng
American Economic Journal: Microeconomics
vol. 14, no. 4, November 2022
(pp. 465–93)
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Abstract

We examine optimal auction design when buyers may receive future outside offers. The winning bidder may choose to default upon observing her outside offer. Under the optimal mechanism, the bidder with the highest value wins if and only if her value is above a cutoff, and the winner never defaults. The optimal auction takes the form of a second-price auction with a reserve price and a deposit by the winning bidder. Under regularity conditions, both the optimal reserve price and the deposit increase when the distribution of outside offers worsens.

Citation

Che, Xiaogang, Tong Li, Jingfeng Lu, and Xiaoyong Zheng. 2022. "Deposit Requirements in Auctions." American Economic Journal: Microeconomics, 14 (4): 465–93. DOI: 10.1257/mic.20200206

Additional Materials

JEL Classification

  • D44 Auctions
  • D82 Asymmetric and Private Information; Mechanism Design
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