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Optimal Auctions with Financially Constrained Bidders

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  • 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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    Cited by:

    1. repec:wsi:igtrxx:v:17:y:2015:i:04:n:s0219198915500103 is not listed on IDEAS
    2. 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.
    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.

    More about this item

    Keywords

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

    JEL classification:

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

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