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Bidding with Securities: Auctions and Security Design

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Author Info

  • Peter M. DeMarzo
  • Ilan Kremer
  • Andrzej Skrzypacz

Abstract

We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset's realized value. In formal security-bid auctions, the seller restricts the security design to an ordered set and uses a standard auction format (e.g., first- or second-price). In informal settings, bidders offer arbitrary securities and the seller chooses the most attractive bid, based on his beliefs, ex post. We characterize equilibrium and show that steeper securities yield higher revenues, that auction formats can be ranked based on the security design, and that informal auctions lead to the lowest possible revenues.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828054825475
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 4 (September)
Pages: 936-959

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:4:p:936-959

Note: DOI: 10.1257/0002828054825475
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