Financing auction bids
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