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Puce François Maréchal (Université de Franche-Comté)

mardi 14 novembre 2017

 The Impact of a Right of First Refusal Clause in a First-Price Auction with Unknown Heterogeneous Risk-Aversion

Abstract: We consider that a seller wishes to sell an asset by means of a first-price auction to two potential buyers. One of them ma be granted a Right of First Refusal (ROFR) clause which gives him the opportunity to match the bid of the other buyer. When both buyers exhibit heterogeneous risk-attitudes and do not exactly know the competitor’s degree of risk-aversion, we first determine strategic bidding behaviors with and without the ROFR clause. Then, we show that granting the least risk-averse bidder a ROFR can increase the seller’s expected profit. Moreover, we show that the ROFR grows the expected joint profit of the seller and the right-holder but always decreases the non- right-holder expected utility.

Homepage: http://crese.univ-fcomte.fr/francois_marechal.html