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Selling shares to budget-constrained bidders: an experimental study of the proportional auction

Published online by Cambridge University Press:  01 January 2025

Jinsoo Bae  and
John H. Kagel Open the ORCID record for John H. Kagel [Opens in a new window]
Jinsoo Bae
Affiliation:
Korea Institute of Public Finance, Yeongi-gun, South Korea
John H. Kagel*
Affiliation:
Ohio State University, Columbus, USA
*
e-mail: [email protected]
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Abstract

We explore the efficiency and revenue of proportional auctions (PA) compared to first price auction (FPA) for budget-constrained bidders. PA auctions have been used in privatization of Russian assets and in cryptocurrency sales, as they can achieve higher efficiency and revenue than FPAs when bidders face severe financial constraints. The experimental results support this in that under a tight budget constraint PA achieved higher revenue and efficiency than FPA, with these results reversed under a looser budget constraint. Detailed patterns of bidding are compared to the theoretical predictions for both PA and FPA.

Keywords

Budget-constrained biddersProportional auctionFirst price auction

JEL classification

D44: Auctions D02: Institutions: Design, Formation, Operations, and Impact
Type
Original Paper
Information
Journal of the Economic Science Association , Volume 8 , Issue 1-2 , December 2022 , pp. 45 - 55
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2022.

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