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.

aftermarkets, attitude, auctions, risk
Oligopoly and Other Forms of Market Imperfection (jel D43), Auctions (jel D44), Asymmetric and Private Information (jel D82)
dx.doi.org/10.1016/j.jet.2006.05.005, hdl.handle.net/1765/11622
Journal of Economic Theory
Erasmus School of Economics

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