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BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING-BID AUCTIONS

Authors


  • *We gratefully acknowledge comments by two anonymous referees, the Editor, Jim Anton, Gary Biglaiser, Leslie Marx, Sergio Parreiras, Curt Taylor, and Lise Vesterlund who have helped us to improve and clarify both the content and the exposition of the paper. We also acknowledge comments by participants at seminars held at Duke-UNC, Toulouse, Ohio State, NYU, Stony Brook, Bocconi, Brescia, Torino, Venezia, Arizona, Pittsburgh, Rochester, Wisconsin - Madison, the 2001 Midwest Theory Conference, the 2002 Decentralization Conference. The initial version of this work was completed while Brusco was visiting the Department of Economics at Stern School of Business, New York University. Sandro Brusco acknowledges financial support from the Ministerio de Educación y Ciencias D.G.E.S., proyecto SEC2001-0445.

Abstract

The possibility, even if arbitrarily small, of binding budget constraints in simultaneous ascending bid auctions induces strategic demand reduction and generates significant inefficiencies. Under mild conditions on the distributions of the bidders' values, unconstrained bidders behave as if they were liquidity constrained, even as the probability that bidders are budget constrained goes to zero.

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