BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING-BID AUCTIONS

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. Copyright 2008 The Authors.

Duke Scholars

Author Giuseppe Lopomo Fuqua School of Business