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Simultaneous Ascending Bid Auctions with Budget Constraints

Authors: Brusco, Sandro
Lopomo, Giuseppe
Keywords: Auctions;Multiple Objects;Collusion
Issue Date: Aug-2002
Series/Report no.: EC-02-14
Abstract: We identify and analyze three distinct effects arising from potentially binding budget constraints in multi-unit ascending auctions. First, binding budgets clearly reduce the level of competition among bidders. Second, budget constraints may at the same time make it difficult to sustain collusive equilibria when bidders lack sufficient resources to ‘punish’ defectors. Third, the mere possibility, even if arbitrarily small, of binding budget constraints can reduce competition substantially because bidders can ‘pretend’ to be constrained, even if they are not. In this cases, measures restricting the participation of low-budget bidders, e.g. reserve prices, can increase social welfare.
Appears in Collections:Economics Working Papers

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