The Dynamics of Prices in Auctions with Financial Constraints∗

This paper studies a sequence of single-unit (procurement-)auctions with fi-nancial constraints and in which bidders can use profits in past auctions to alle-viate future financial constraints. Our results show that prices remain away from marginal costs even when bidders can accumulate profits to alleviate their finan-cial constraints at almost zero cost. We also show that financial constraints can give rise to increasing dominance. To derive our results we study a finite period model and approximate the dynamics of its equilibrium with an infinite horizon model