Multiple Unit Auctions and Short Squeezes
AbstractThis article develops a theory of multiunit auctions where short squeezes can occur in the secondary market. Both uniform and discriminatory auctions are studied and bidders can submit multiple bids. We show that bidders with short and long preauction positions have different valuations in an otherwise common value setting. Discriminatory auctions lead to more short squeezing and higher revenue than uniform auctions, ceteris paribus. Asymptotically, as the auction size approaches infinity, the two formats lead to equivalent outcomes. Shorts employ more aggressive equilibrium bidding strategies. Most longs strategically choose to be passive. Free riding on a squeeze by small, long players has no impact on these results, but affects revenue in discriminatory auctions. Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal The Review of Financial Studies.
Volume (Year): 17 (2004)
Issue (Month): 2 ()
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Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- D62 - Microeconomics - - Welfare Economics - - - Externalities
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- Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
- Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
- Chatterjea, Arkadev & Jarrow, Robert A., 1998. "Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(02), pages 255-289, June.
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