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Financing Auction Bids

EFA 2001 Barcelona Meetings

45 Pages Posted: 11 Apr 2001  

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

S. Viswanathan

Duke University - Fuqua School of Business; Duke University - Department of Economics

Date Written: May 2004

Abstract

In many auctions, bidders do not have enough cash to pay their bid. If bidders have asymmetric cash positions and independent private values then auctions will be inefficient. However, what happens if bidders have access to financial markets? We characterize efficient auctions and show that in an efficient auction the information rent that a bidder earns depends generally on both his valuation and his cash position. In contrast a competitive capital market that is efficient must have information rents that only depend on valuation. This tension between information rents in a efficient auction and zero profits in a competitive equilibrium implies that most often, competitive financing is not efficient.

JEL Classification: D44, D82, G10

Suggested Citation

Rhodes-Kropf, Matthew and Viswanathan, S., Financing Auction Bids (May 2004). EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=265150 or http://dx.doi.org/10.2139/ssrn.265150

Matthew Rhodes-Kropf (Contact Author)

Harvard Business School - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Rock Center 312
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

S. Viswanathan

Duke University - Fuqua School of Business ( email )

Durham, NC 27708-0120
United States
919-660-7784 (Phone)
919-684-2818 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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