Revenue Comparisons of Auctions with Ambiguity Averse Sellers
Abstract
We study the revenue comparison problem of auctions when the seller has a maxmin expected utility preference. The seller holds a set of priors around some reference belief, interpreted as an approximating model of the true probability law or the focal point distribution. We develop a methodology for comparing the revenue performances of auctions: the seller prefers auction X to auction Y if their transfer functions satisfy a weak form of the single-crossing condition. Intuitively, this condition means that a bidder's payment is more negatively associated with the competitor's type in X than in Y. Applying this methodology, we show that when the reference belief is independent and identically distributed (IID) and the bidders are ambiguity neutral, (i) the first-price auction outperforms the second-price and all-pay auctions, and (ii) the second-price and all-pay auctions outperform the war of attrition. Our methodology yields results opposite to those of the Linkage Principle.
Keywords
Cite
@article{arxiv.2211.12669,
title = {Revenue Comparisons of Auctions with Ambiguity Averse Sellers},
author = {Sosung Baik and Sung-Ha Hwang},
journal= {arXiv preprint arXiv:2211.12669},
year = {2022}
}