CANCELLED - Failures in Second-Price Auctions

We examine sealed-bid second-price auctions where, with a certain probability, the bidders fail to pay their debt to the seller. In such auctions, both the seller and the bidders might gain if the bidders lower their bids relative to the equilibrium bids. Given some assumptions on the probability to default, we show that an upper bound on the bids, induced by the seller, increases the expected payoff of all the parties involved.