Optimal Auctions with Financially Constrained Bidders

Mallesh M. Pai and Rakesh Vohra

No 1471, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

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.

Keywords: the universal type space, the strategic topology; the uniform strategic topology; the uniform-weak topology; interim correlated rationalizable actions (search for similar items in EconPapers)
JEL-codes: C70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-gth
Date: 2008-08

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