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Optimal Auctions with Financially Constrained Bidders

Author

Listed:
  • Mallesh M. Pai
  • Rakesh Vohra

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.

Suggested Citation

  • Mallesh M. Pai & Rakesh Vohra, 2008. "Optimal Auctions with Financially Constrained Bidders," Discussion Papers 1471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1471
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    Citations

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    Cited by:

    1. Mustafa Dogan_, 2014. "Product Upgrades and Posted Prices," PIER Working Paper Archive 14-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    2. Martin Grossmann & Helmut Dietl, 2012. "Asymmetric contests with liquidity constraints," Public Choice, Springer, vol. 150(3), pages 691-713, March.
    3. , & ,, 2013. "Implementation in multidimensional dichotomous domains," Theoretical Economics, Econometric Society, vol. 8(2), May.
    4. Ashlagi Itai & Braverman Mark & Hassidim Avinatan & Lavi Ron & Tennenholtz Moshe, 2010. "Position Auctions with Budgets: Existence and Uniqueness," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-32, May.
    5. Anat Lerner & Rica Gonen, 2015. "Autocratic Mechanisms: A Form of Dictatorship in Constrained Combinatorial Auctions," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-25.
    6. Yeon‐Koo Che & Jinwoo Kim & Konrad Mierendorff, 2013. "Generalized Reduced‐Form Auctions: A Network‐Flow Approach," Econometrica, Econometric Society, vol. 81(6), pages 2487-2520, November.
    7. Saeed Alaei & Hu Fu & Nima Haghpanah & Jason Hartline & Azarakhsh Malekian, 2019. "Efficient Computation of Optimal Auctions via Reduced Forms," Mathematics of Operations Research, INFORMS, vol. 44(3), pages 1058-1086, August.
    8. Dobzinski, Shahar & Lavi, Ron & Nisan, Noam, 2012. "Multi-unit auctions with budget limits," Games and Economic Behavior, Elsevier, vol. 74(2), pages 486-503.

    More about this item

    Keywords

    the universal type space; the strategic topology; the uniform strategic topology; the uniform-weak topology; interim correlated rationalizable actions;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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