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Resale in Auctions with Financial Constraints

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  • De Frutos, María Ángeles
  • Espinosa Alejos, María Paz

Abstract

This paper analyzes auctions where bidders face nancial constraints that may force them to resell part of the property of the good (or subcontract part of a project) at a resale market. First we show that the ine¢ cient speculative equilibria of second- price auctions (Garratt and Tröger, 2006) generalizes to situations with partial resale where only the high value bidder is nancially constrained. However, when all players face nancial constraints the ine¢ cient speculative equilibria disappear. Therefore, for auctioning big facilities or contracts where all bidders are nancially constrained and there is a resale market, the second price auction remains a simple and appropriate mechanism to achieve an e¢ cient allocation.

Suggested Citation

  • De Frutos, María Ángeles & Espinosa Alejos, María Paz, 2012. "Resale in Auctions with Financial Constraints," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    • Handle: RePEc:ehu:dfaeii:8758
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    References listed on IDEAS

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    Keywords

    auctions; resale; financial constraints; subcontracting;
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