If the bidders in an auction have financial constraints, how should the seller design the auction to maximize his profit? An observed practice is that the seller offers a loan, or interest subsidy, to the highest bidder. The work by Che and Gale [3] has given a partial answer for second-price auctions, with default risk assumed away. This paper provides a complete solution for first-price auctions, with default risk included. For each level of the interest subsidy, we solve the auction game and give a closed form solution for its symmetric equilibrium.
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Paper provided by Minnesota - Center for Economic Research in its series Papers with number
301.
Length: 63 pages Date of creation: 1997 Date of revision: Handle: RePEc:fth:minner:301
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