Selection effects in auctions for monopoly rights
Journal of Economic Theory , Volume 134 - Issue 1 p. 576- 582
We demonstrate that auctioning market licenses may result in higher market prices than assigning them via more random allocation mechanisms. When future market profit is uncertain, winning an auction is like winning a lottery ticket. If firms differ in risk attitudes, auctions select the least risk-averse firm, which, in turn, set a higher price (or a higher quantity, in case quantity is the decision variable) in the marketplace than an average firm.
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|Journal of Economic Theory|
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Janssen, M.C.W, & Karamychev, V.A. (2007). Selection effects in auctions for monopoly rights. Journal of Economic Theory, 134(1), 576–582. doi:10.1016/j.jet.2006.05.005