Uniform Price Auctions with Budget Constrained Bidders: An Experimental Study on Budget Rules

Abstract

The uniform price auction often allows financially constrained bidders to bid on, with auctioneers putting restrictions on bids to prevent bidders to pay a price that they cannot afford. For example, Google’s initial public offering (IPO) and Korea’s emission trade system auctions restrict bidders from submitting bids that add up to more than the amount of money that they can pay. In this study, I suggest an alternative budget rule that still maintains bidders’ budget constraints and experimentally show that the alterative rule can improve the efficiency and revenue of auctions. The experiment simulated a weak budget and a tighter budget, and the improvement was much pronounced under the tighter budget.