Journal Article

Standard Auctions with Financially Constrained Bidders

Yeon-Koo Che and Ian Gale

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 65, issue 1, pages 1-21
Published in print January 1998 | ISSN: 0034-6527
Published online January 1998 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00033
Standard Auctions with Financially Constrained Bidders

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We develop a methodology for analyzing the revenue and efficiency performance of auctions when buyers have private information about their willingness to pay and ability to pay. We then apply the framework to scenarios involving standard auction mechanisms. In the simplest case, where bidders face absolute spending limits, first-price auctions yield higher expected revenue and social surplus than second-price auctions. The revenue dominance of first-price auctions over second-price auctions carries over to the case where bidders have access to credit. These rankings are explained by differences in the extent to which financial constraints bind in different auction formats.

Journal Article.  0 words. 

Subjects: Economics

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