STANDARD AUCTIONS WITH FINANCIALLY CONSTRAINED BIDDERS

We develop a methodology for analyzing the revenue and efficiency perf ormance of auctions when buyers have private information about their w illingness to pay and ability to pay. We then apply the framework to s cenarios involving standard auction mechanisms. In the simplest case, where bidders face absolute spending limits, first-price auctions yiel d higher expected revenue and social surplus than second-price auction s. The revenue dominance of first-price auctions over second-price auc tions carries over to the case where bidders have access to credit. Th ese rankings are explained by differences in the extent to which finan cial constraints bind in different auction formats.