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A near Pareto optimal auction with budget constraints

  • Hafalir, Isa E.
  • Ravi, R.
  • Sayedi, Amin

In a setup where a divisible good is to be allocated to a set of bidders with budget constraints, we introduce a mechanism in the spirit of the Vickrey auction. In the mechanism we propose, understating budgets or values is weakly dominated. Since the revenue is increasing in budgets and values, all kinds of equilibrium deviations from true valuations turn out to be beneficial to the auctioneer. We also show that ex-post Nash equilibrium of our mechanism is near Pareto optimal in the sense that all full winnersʼ values are above all full losersʼ values.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 74 (2012)
Issue (Month): 2 ()
Pages: 699-708

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:699-708
DOI: 10.1016/j.geb.2011.08.001
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  1. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
  2. Lawrence M. Ausubel, 2004. "An Efficient Ascending-Bid Auction for Multiple Objects," American Economic Review, American Economic Association, vol. 94(5), pages 1452-1475, December.
  3. Dobzinski, Shahar & Lavi, Ron & Nisan, Noam, 2012. "Multi-unit auctions with budget limits," Games and Economic Behavior, Elsevier, vol. 74(2), pages 486-503.
  4. Yeon-Koo Che & Ian Gale, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 1-21.
  5. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
  6. Alexey Malakhov & Rakesh Vohra, 2008. "Optimal auctions for asymmetrically budget constrained bidders," Review of Economic Design, Springer;Society for Economic Design, vol. 12(4), pages 245-257, December.
  7. Arieh Gavious & Benny Moldovanu & Aner Sela, 2002. "Bid Costs and Endogenous Bid Caps," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 709-722, Winter.
  8. Jean-Pierre Benoit & Vijay Krishna, 1998. "Multiple-Object Auctions with Budget Constrained Bidders," Game Theory and Information 9805001, EconWPA, revised 26 Jul 1999.
  9. 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.
  10. 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.
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