SBR-9423649 Yeon-Koo Che One of the great success stories of the application of game theory to economics has been in the analysis and design of auctions. This has been highlighted by the recent federal auctions of licenses for the use of parts of the radio spectrum. Although auction theorists have succeeded in making their models more and more realistic, they have so far ignored the financial constraints of the bidders. This project will begin to redress this by evaluating the effect of financial constraints on bidding behavior when such constraints are not public information, but rather carefully guarded secrets. The investigator has already determined that under many common auction rules the good being auctioned off is not necessarily sold to the bidder who values it the most. Furthermore, the presence of financial constraints favors the use of lotteries and tends to favor the all-pay auction over the first-price sealed-bid auction. The research will be conducted in three parts. Part 1 considers the standard monopoly model in which a single seller sells a homogenous good to a continuum of sellers. In Part 2, the investigator looks at the auction of a single good to many potential buyers. Part 3 examines the desirability of low-interest, seller-provided financing. Other promising avenues of research are: joint bidding, mergers, and the design of privatization and bankruptcy policies.
