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Working Paper

Auctions with Budget-Constrained Buyers: A Nonequivalence Result

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Anecdotal evidence of concern about the limited financial resources of small firms abounds in government auctions. Recent empirical work also provides evidence of the importance of capital constraints. In this paper, we show that the first-price sealed-bid auction yields higher expected revenue than the second-price sealed-bid auction if buyers face wealth constraints. Differences in the extent to which wealth constraints bind in the different auction formats generate the revenue nonequivalence.
03.01.1994ISSN 2573-7953 WP 94-02DOI 10.26509/frbc-wp-199402

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Che, Yeon-Koo, and Ian Gale. 1994. “Auctions with Budget-Constrained Buyers: A Nonequivalence Result.” Federal Reserve Bank of Cleveland, Working Paper No. 94-02. https://doi.org/10.26509/frbc-wp-199402