Anglo-Dutch Premium Auctions in Eighteenth-Century Amsterdam

Abstract

Abstract. An Anglo-Dutch premium auction consists of an English auction followed by a Dutch auction, with a cash premium paid to the winner of the first round.We study such auctions used in the secondary debt market in eighteenth-centuryAmsterdam. This was among the first uses of auctions, or any structured marketclearing mechanism, in a financial market. We find that this market presented two distinct challenges -generating competition and aggregating information. We argue that the Anglo-Dutch premium auction is particularly well-suited to do both.Modeling equilibrium play theoretically, we predict a positive relationship between the uncertainty in a security's value and the likelihood of a second-round bid. Analyzing data on 16,854 securities sold in the late 1700s, we find empirical support for this prediction. This suggests that bidding behavior may have been consistent with (non-cooperative) equilibrium play, and therefore that these auctions were successful at generating competition. We also find evidence suggesting that these auctions succeeded at aggregating information. Thus, the Anglo-Dutch premium auction appears to have been an effective solution to a complex early market design problem.JEL Classification: D44, N23

Financial lessons from the long history of housing markets

“…The format of these auctions has changed very little over time: before the actual auction, the auction house and organizing realtors use newspapers or other media to promote the properties for sale. During the auction, participants bid on the properties using a unique auction format: the Anglo-Dutch Premium Auction (Boerner et al, 2016). For auctioned properties, the buyer pays the required transaction price and fees and subsequently registers the transfer of property formally.…”