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BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING‐BID AUCTIONS *
Author(s) -
BRUSCO SANDRO,
LOPOMO GIUSEPPE
Publication year - 2008
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2008.00335.x
Subject(s) - common value auction , reduction (mathematics) , market liquidity , economics , budget constraint , unique bid auction , microeconomics , monetary economics , mathematics , auction theory , geometry
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.