A buyout option alleviates implicit collusion in uniform‐price auctions

Demand reduction causes extremely low revenues in uniform‐price auctions, which can be interpreted as implicit collusion among bidders. We model a uniform‐price auction with a buyout option and investigate its potential for alleviating implicit collusion. We focus on the extreme case that yields a revenue of zero with no buyout option. Our main result is that the seller obtains a positive expected revenue unless the buyout price is high. Notably, a bidder will exercise a buyout option even though the bidder is risk neutral; that is, auction aversion is fully endogenous, in contradiction to the findings of previous work.