Auctions of Divisible Goods: On the Rationale for the Treasury Experiment

Back, Kerry; Zender, Jaime F.

doi:10.1093/rfs/6.4.733

Cited by 434 publications

(320 citation statements)

References 14 publications

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“…As in Proposition 9 it is clear that the other player has no incentives to bid below p. We know that Z has a single zero crossing in the interval [0, ε − q A (p)] moving from positive to negative at some point q * (p) ∈ (0, ε−q A (p)) for p ∈ (p, p m ). Now an optimal offer cannot follow the q * (p) curve since this would contradict the condition (5). So the only place where an optimal offer can have 0 < p 0 (q) < ∞ is along the curve q A (p) (or in a region surrounding q A (p) where Z = 0 in the case when marginal costs are constant).…”

Section: Proposition 11mentioning

confidence: 98%

“…It is clear that the lowest price used is p. Now an optimal offer cannot contain a section with 0 < p 0 (q) < ∞ since from Lemma 1 this only happens when Z = 0 and the optimal solution cannot follow the q * (p) curve since this would contradict the condition (5). Hence an optimal solution can only consist of horizontal and vertical segments.…”

Section: Also It Is Easy To See From (39) Thatmentioning

confidence: 98%

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Mixed Strategies in Discriminatory Divisible-Good Auctions

2010

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Using the concept of market-distribution functions, we derive general optimality conditions for discriminatory divisible-good auctions, which are also applicable to Bertrand games and non-linear pricing. We introduce the concept of offer distribution function to analyze randomized offer curves, and characterize mixed-strategy Nash equilibria for pay-as-bid auctions where demand is uncertain and costs are common knowledge; a setting for which pure-strategy supply function equilibria typically do not exist. We generalize previous results on mixtures over horizontal offers as in Bertrand-Edgeworth games, but more importantly we characterize novel mixtures over partly increasing supply functions.

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Section: Proposition 11mentioning

confidence: 98%

Section: Also It Is Easy To See From (39) Thatmentioning

confidence: 98%

Mixed Strategies in Discriminatory Divisible-Good Auctions

2010

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“…Section 5.2 examines the role of strategic considerations, an issue highlighted in the theoretical models of Wilson (1979) and Back and Zender (1993). Motivated by the constructed equilibria in these papers (see footnote 5 for the driving ideas), we examine whether the slope of a bidder's demand curve increases in the slope of the aggregate demand curve submitted by the other bidders.…”

Section: Days From Aucaonmentioning

confidence: 99%

“…One comes from the well-known "winner's curse" problem in common-value auctions; this issue is explored further in Section 5.1. The other is strategic behavior; Wilson (1979) and Back and Zender (1993), among others, have shown that monopsonistic competition in uniform-price auctions could lead to underpricing in equilibrium. The evidence for strategic behavior effects on auction outcomes is examined in Section 5.2.…”

Section: Econometric Analysismentioning

confidence: 99%

“…It was first pointed out by Wilson (1979) that auctions of divisible goods are fundamentally different in their properties from single-unit auctions. Wilson's insights were extended by Back and Zender (1993) who also showed that uniform-price auctions of divisible goods could be dominated (from the seller's expected revenue standpoint) by discriminatory auctions. This result is contrary to the corresponding result in single-unit common-value auctions.…”

Section: Liquidity and Strategic Considerationsmentioning

confidence: 99%

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CDS Credit Event Auctions

Gupta

Sundaram

2011

SSRN Journal

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two others who wished to remain anonymous. A very special thanks to Joel Hasbrouck for several valuable discussions concerning the analysis in this paper and especially for suggesting procedures to overcome data deficiencies and anomalies; thanks also to Ravi Jagannathan for his comments and suggestions. Much useful input was also provided by participants at conferences and seminars where earlier versions of this paper were presented including the Nasdaq OMX Derivatives AbstractCredit-event auctions were introduced in 2005 to facilitate cash settlement in the credit default swap market following a credit event. They have a novel two-stage structure that makes them distinct from other auction forms. This paper studies outcomes in credit-event auctions over the period 2008-10.Our analysis is in three parts. In the first part, we look at the efficacy of price discovery in the auction. We find that the auction price has a significant bias relative to the pre-and post-auction market prices for the same instruments, and that volatility of market prices often increases after the auction; nonetheless, we find that information generated in the auction is very valuable for post-auction market price formation. In the second part of the analysis, we look at behavior within and across auctions and the factors that influence it. We find, among other things, that "winner's curse" concerns play a central role, affecting liquidity provision in the auction, the pricing bias, and bidders' within-auction updating of their private information. In the final part of the paper, under some simplifying assumptions, we carry out a structural estimation to recover the underlying distribution of signals. Using these estimates, we find that the alternative auction formats could reduce the amount of bias in the auction final price.

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