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Optimal Auctions for Asymmetrically Budget Constrained Bidders

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  • Alexey Malakhov
  • Rakesh V. Vohra
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    Abstract

    We consider an environment with a single divisible good and two bidders. The valuations of the bidders are private information but one bidder has a commonly known budget constraint. For this environment we derive the revenue maximizing subsidy free incentive compatible auction. We also examine the case when the budget constraint is private information but bidders must post a bond.

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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1419.pdf
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    Bibliographic Info

    Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1419.

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    Date of creation: Dec 2005
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    Handle: RePEc:nwu:cmsems:1419

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    Web page: http://www.kellogg.northwestern.edu/research/math/
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    1. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
    2. Harris, Milton & Raviv, Artur, 1981. "A Theory of Monopoly Pricing Schemes with Demand Uncertainty," American Economic Review, American Economic Association, vol. 71(3), pages 347-65, June.
    3. Gavious, Arieh & Moldovanu, Benny & Sela, Aner, 2000. "Bid Costs and Endogenous Bid Caps," Sonderforschungsbereich 504 Publications 01-19, Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim.
    4. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
    5. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
    6. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, vol. 100(1), pages 129-171, September.
    7. Che, Yeon-Koo & Gale, Ian, 1996. "Expected revenue of all-pay auctions and first-price sealed-bid auctions with budget constraints," Economics Letters, Elsevier, vol. 50(3), pages 373-379, March.
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