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An Ascending Multi-Item Auction with Financially Constrained Bidders

  • Gerard van der Laan
  • Zaifu Yang

A number of heterogeneous items are to be sold to a group of potential bidders. Every bidder knows his own values over the items and his own budget privately. Due to budget constraint, bidders may not be able to pay up to their values. In such a market, a Walrasian equilibrium typically fails to exist and furthermore no existing allocation mechanism can tackle this case. We propose the notion of an `equilibrium under allotment' to such markets and develop an ascending auction mechanism that always finds such an equilibrium assignment and corresponding price system in finitely many rounds. The auction can be viewed as an appropriate and proper generalization of the ascending auction of Demange, Gale and Sotomayor from settings without financial constraints to settings with financial constraints. We examine various properties of the auction and its outcome.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 11/04.

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Date of creation: Feb 2011
Date of revision:
Handle: RePEc:yor:yorken:11/04
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  1. Gabrielle Demange & Gale David & Marilda Sotomayor, 1986. "Multi-Item Auctions," Post-Print halshs-00670982, HAL.
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
  3. Herings P. Jean-Jacques & Konovalov Alexander, 2000. "Constrained Suboptimality when Prices Are Non-competitive," Research Memorandum 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Paul Klemperer, 2004. "Survey of Auction Theory, from Auctions: Theory and Practice
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  5. Debasis Mishra & Dolf Talman, 2007. "Overdemand and underdemand in economies with indivisible goods and unit demand," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 07-03, Indian Statistical Institute, New Delhi, India.
  6. 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.
  7. David J. Salant, 1997. "Up in the Air: GTE's Experience in the MTA Auction for Personal Communication Services Licenses," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 549-572, 09.
  8. Sandro Brusco & Giuseppe Lopomo, 2005. "Simultaneous Ascending Auctions with Complementarities and Known Budget Constraints," Department of Economics Working Papers 05-13, Stony Brook University, Department of Economics.
  9. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
  10. Ning Sun & Zaifu Yang, 2009. "A Double-Track Adjustment Process for Discrete Markets With Substitutes and Complements," Econometrica, Econometric Society, vol. 77(3), pages 933-952, 05.
  11. Sandro Brusco & Giuseppe Lopomo, 2002. "Simultaneous Ascending Bid Auctions with Budget Constraints," Working Papers 02-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  12. Pitchik, Carolyn & Schotter, Andrew, 1986. "Budget Constrained Sequential Auctions," Working Papers 86-21, C.V. Starr Center for Applied Economics, New York University.
  13. Sandro Brusco & Giuseppe Lopomo, 2008. "BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING-BID AUCTIONS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 113-142, 03.
  14. 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.
  15. Sotomayor, Marilda, 2002. "A Simultaneous Descending Bid Auction for Multiple Items and Unitary Demand," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil), vol. 56(3), July.
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