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Cover of: The Effect of a Right-of-First-Refusal Clause in a First-Price Auction with Heterogeneous Risk-Averse Bidders
Karine Brisset, François Cochard, François Maréchal

The Effect of a Right-of-First-Refusal Clause in a First-Price Auction with Heterogeneous Risk-Averse Bidders

Section: Articles
Volume 176 (2020) / Issue 3, pp. 526-548 (23)
Published 20.04.2020
DOI 10.1628/jite-2020-0034
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  • 10.1628/jite-2020-0034
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Summary
Considering the sale of an asset by a first-price sealed-bid auction, we analyze the effect of a right-of-first-refusal (ROFR) clause, under which a buyer can match the highest bidder. When the buyers do not exactly know their competitors' degree of risk aversion, we compare their optimal bidding strategies with and without an ROFR. Then, when the seller does not exactly know each buyer's degree of risk aversion, we determine some sufficient conditions under which an ROFR cannot increase the seller's expected revenue. However, when she knows that information and when two buyers compete, we show that granting an ROFR can increase her expected revenue.