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Optimal Auctions with Financially Constrained Bidders

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  • Mallesh M. Pai
  • Rakesh Vohra
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    Abstract

    We consider an environment where potential buyers of an indi- visible good have liquidity constraints, in that they cannot pay more than their `budget' regardless of their valuation. A buyer's valuation for the good as well as her budget are her private information. We derive constrained-efficient and revenue maximizing auctions for this setting. In general, the optimal auction requires `pooling' both at the top and in the middle despite the maintained assumption of a mono- tone hazard rate. Further, the auctioneer will never¯find it desirable to subsidize bidders with low budgets.

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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 1471.

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    Date of creation: Aug 2008
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    Handle: RePEc:nwu:cmsems:1471

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    Related research

    Keywords: the universal type space; the strategic topology; the uniform strategic topology; the uniform-weak topology; interim correlated rationalizable actions;

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    Cited by:
    1. Dobzinski, Shahar & Lavi, Ron & Nisan, Noam, 2012. "Multi-unit auctions with budget limits," Games and Economic Behavior, Elsevier, vol. 74(2), pages 486-503.
    2. Yeon-Koo Che & Jinwoo Kim & Konrad Mierendorff, 2011. "Generalized reduced-form auctions: a network-flow approach," ECON - Working Papers 031, Department of Economics - University of Zurich, revised Mar 2013.

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