BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING‐BID AUCTIONS* |
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| Authors: | SANDRO BRUSCO GIUSEPPE LOPOMO |
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| Institution: | 1. Department of Economics, SUNY at Stony Brook, and Departamento de Economia de la Empresa, Universidad Carlos III de Madrid, Spain.e‐mail: sbrusco@notes.cc.sunysb.edu;2. Fuqua School of Business, Duke University, Durham, North Carolina 27708, U.S.A.e‐mail: glopomo@duke.edu |
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| 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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