Abstract

We consider an environment where potential ex-ante symmetric buyers of an indivisible good have liquidity constraints, in that they cannot pay more than their ‘budget’ regardless of their valuation. A buyer’s valuation for the good as well as her budget are her private information. We derive the symmetric constrained-efficient and revenue maximizing auctions for this setting. In general, the optimal auction requires ‘pooling’ both at the top and in the middle despite the maintained assumption of a monotone hazard rate. Further, the auctioneer will never find it desirable to subsidize bidders with low budgets.

Citations