High Bids and Broke Winners

Charles Zheng

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper analyzes auctions where budget-constrained bidders have options to declare bankruptcy. It predicts a bidding equilibrium that changes is continuously in a borrowing rate available to bidders. When the borrowing rate is above a threshold, high-budget bidders win, and the likelihood of bankruptcy is low. When the borrowing rate is below the threshold, the winner is the most budget-constrained bidder and is most likely to declare bankruptcy. This result explains the ﾓhigh bids and broke winnersﾔ anomaly in the C-Block FCC spectrum auction. Based on its equilibrium analysis, the paper proves that a seller can profit from offering to finance the highest bidder at a below-market interest rate, even with default risk.

Date: 2001-09-01
New Economics Papers: this item is included in nep-exp and nep-fmk
References: Add references at CitEc
Citations: View citations in EconPapers (92)

Published in Journal of Economic Theory, September 2001, vol. 100 no. 1, pp. 129-171

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: High Bids and Broke Winners (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12665

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().