Financing auction bids

Published

Journal Article

In many auctions, bidders do not have enough cash to pay their bid. If bidders have asymmetric cash positions and independent private values, then auctions will be inefficient. However, what happens if bidders have access to financial markets? We characterize efficient auctions and show that in an efficient auction the information rent that a bidder earns depends generally on both his valuation and his cash position. In contrast, a competitive capital market that is efficient must have information rents that depend only on valuation. This tension between information rents in an efficient auction and zero profits in a competitive equilibrium implies that most often, competitive financing is not efficient. Copyright © 2005, RAND.

Duke Authors

Cited Authors

  • Rhodes-Kropf, M; Viswanathan, S

Published Date

  • December 1, 2005

Published In

Volume / Issue

  • 36 / 4

Start / End Page

  • 789 - 815

International Standard Serial Number (ISSN)

  • 0741-6261

Citation Source

  • Scopus