Resale in Auctions with Financial Constraints

Maria-Angeles de Frutos and Maria Paz Espinosa

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: This paper analyzes auctions where bidders face nancial constraints that may force them to resell part of the property of the good (or subcontract part of a project) at a resale market. First we show that the ine¢ cient speculative equilibria of second- price auctions (Garratt and Tröger, 2006) generalizes to situations with partial resale where only the high value bidder is nancially constrained. However, when all players face nancial constraints the ine¢ cient speculative equilibria disappear. Therefore, for auctioning big facilities or contracts where all bidders are nancially constrained and there is a resale market, the second price auction remains a simple and appropriate mechanism to achieve an e¢ cient allocation.

Keywords: auctions; resale; financial constraints; subcontracting (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cta and nep-mic
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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