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Optimal and efficient mechanisms with asymmetrically budget constrained buyers

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  • Boulatov, Alexei
  • Severinov, Sergei

Abstract

The paper characterizes the optimal (revenue-maximizing) mechanism for allocating a good to buyers who face asymmetric budget constraints. The optimal mechanism belongs to one of two classes. When the budget differences between the buyers are small, the mechanism discriminates only between high-valuation types for whom the budget constraint is binding. All low valuations buyers are treated symmetrically despite budget differences. When budget differences are sufficiently large, the mechanism discriminates in favor of buyers with small budgets when the valuations are low, and in favor of buyers with larger budgets when the valuations are high. We also provide a characterization of the constrained-efficient (surplus maximizing) mechanism and demonstrate that it shares the above properties of the optimal mechanism.

Suggested Citation

  • Boulatov, Alexei & Severinov, Sergei, 2021. "Optimal and efficient mechanisms with asymmetrically budget constrained buyers," Games and Economic Behavior, Elsevier, vol. 127(C), pages 155-178.
    • Handle: RePEc:eee:gamebe:v:127:y:2021:i:c:p:155-178
    DOI: 10.1016/j.geb.2021.02.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Mechanism Design; Optimal and efficient mechanisms; Auctions; Asymmetric budget constraints;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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