An ascending multi-item auction with financially constrained bidders

DOI link to open access article: An ascending multi-item auction with financially constrained bidders

Gerard van der Laan, Zaifu Yang

Journal of Mechanism and Institution Design
Volume 1, issue 1, pages 109-149 (December 2016)
doi: 10.22574/jmid.2016.12.004


Several heterogeneous items are to be sold to a group of potentially budget-constrained bidders. Every bidder has private knowledge of his own valuation of the items and his own budget. Due to budget constraints, bidders may not be able to pay up to their values and typically no Walrasian equilibrium exists. To deal with such markets, we propose the notion of 'equilibrium underallotment' and develop an ascending auction mechanism that always finds such an equilibrium assignment and a corresponding system of prices in finite time. The auction can be viewed as a novel generalization of the ascending auction of Demange et al. (1986) from settings without financial constraints to settings with financial constraints. We examine various strategic and efficiency properties of the auction and its outcome.

Keywords: Ascending auction, Budget constraint, Equilibrium under allotment.

JEL Classification Numbers: D44.