Post-auction Investment by Financially Constrained Bidders (by Ryuji Sano)


Ryuji Sano


This study compares standard auctions when bidders are financially constrained and valuation is endogenously determined by ex post investment. Bidders have a convex cost function because of financial constraints or borrowing costs. When the valuation is linear in investment, the revenue and investment equivalences hold. When the valuation is concave in investment, the first-price auction yields a higher expected revenue than the second-price auction, which is similar with the preceding models of financially constrained bidders. Although the ranking of investment and bidders’ payoff is ambiguous, the second-price auction leads to larger expected investment and bidders’ payoff under certain specifications. Scoring auctions can lead to larger investment while decreasing auction revenue.