Auctioning Big Facilities under Financial Constraints

This paper analyzes auctions for big facilities or contracts where bidders face financial constraints that may force them to resell part of the property of the good (or subcontract part of a project) at a resale market. We show that the interaction between resale and financial constraints changes previous results on auctions with financial constraints and those in auctions with resale. The reason is the link between the resale price and the auction price introduced by the presence of financial constraints. Such link induces a potential loser to modify the auction price in order to fine-tune the winner's resale offer, which may require forcing the winner to be financially constrained.