Buy-price English auction

Consider an English auction for a single object in which there is an option for a bidder to guarantee a purchase at a seller-specified buy price b at any time. We show that there exist (nu) over bar and (nu) over cap (>= (nu) over bar). such that a bidder purchases at the buy price immediately if his valuation nu is no less than (nu) over cap or (nu) over bar <= nu <= b and at least one other bidder is participating in the auction. If b <= nu < (nu) over bar, he purchases at the buy price once the current bid reaches a strategically chosen threshold price. A properly set buy price increases expected social welfare and the expected utility of each agent when either buyers or seller are risk-averse. (c) 2005 Elsevier Inc. All rights reserved.