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Asset Auctions, Information, and Liquidity

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  • Vives, Xavier

Abstract

A model is presented of a uniform price auction where bidders compete in demand schedules; the model allows for common and private values in the absence of exogenous noise. It is shown how private information yields more market power than the levels seen with full information. Results obtained here are broadly consistent with evidence from asset auctions, may help explain the response of central banks to the crisis, and suggest potential improvements in the auction formats of asset auctions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7670.

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Date of creation: Feb 2010
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Handle: RePEc:cpr:ceprdp:7670

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Keywords: Adverse selection; Bid shading; Market power; Reverse auctions;

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References

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  1. Bindseil, Ulrich & Nyborg, Kjell G. & Strebulaev, Ilya A., 2004. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt9878h0kn, Anderson Graduate School of Management, UCLA.
  2. Ayuso, J. & Repullo, R., 2000. "A Model of the Open Market Operations of the European Central Bank," Papers, Centro de Estudios Monetarios Y Financieros- 0011, Centro de Estudios Monetarios Y Financieros-.
  3. Motty Perry & Philip J. Reny, 1999. "On The Failure of the Linkage Principle in Multi-Unit Auctions," Econometrica, Econometric Society, Econometric Society, vol. 67(4), pages 895-900, July.
  4. Keloharju, Matti & Nyborg, Kjell G & Rydqvist, Kristian, 2002. "Strategic Behaviour and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3586, C.E.P.R. Discussion Papers.
  5. Tenorio, Rafael, 1997. "Some evidence on strategic quantity reduction in multiple unit auctions," Economics Letters, Elsevier, vol. 55(2), pages 209-213, August.
  6. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Marco LiCalzi & Alessandro Pavan, 2003. "Tilting the Supply Schedule to Enhance Competition in Uniform-Price Auctions," Working Papers 2003.22, Fondazione Eni Enrico Mattei.
  8. Xavier Vives, 2009. "Strategic Supply Function Competition with Private Information," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1736, Cowles Foundation for Research in Economics, Yale University.
  9. Kandel, Shmuel & Sarig, Oded & Wohl, Avi, 1999. "The Demand for Stocks: An Analysis of IPO Auctions," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 227-47.
  10. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, Econometric Society, vol. 68(4), pages 799-838, July.
  11. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2007. "Declining Valuations And Equilibrium Bidding In Central Bank Refinancing Operations," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 07-22, Swiss Finance Institute.
  12. Gautam Goswami & Thomas Noe & Michael Rebello, 1995. "Collusion in uniform-price auctions: experimental evidence and implications for Treasury auctions," Working Paper, Federal Reserve Bank of Atlanta 95-5, Federal Reserve Bank of Atlanta.
  13. Bhattacharya, Utpal & Spiegel, Matthew, 1991. "Insiders, Outsiders, and Market Breakdowns," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 255-82.
  14. George-Marios Angeletos & Alessandro Pavan, 2008. "Policy with Dispersed Information," Carlo Alberto Notebooks, Collegio Carlo Alberto 86, Collegio Carlo Alberto.
  15. Paul Klemperer, 2009. "A New Auction for Substitutes: Central-Bank Liquidity Auctions, "Toxic Asset" Auctions, and Variable Product-Mix Auctions," Economics Series Working Papers 2009-W06, University of Oxford, Department of Economics.
  16. Kyle, Albert S, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(3), pages 317-55, July.
  17. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
  18. Lawrence M. Ausubel & Peter Cramton, 2008. "A Troubled Asset Reverse Auction," Papers of Peter Cramton 08tara, University of Maryland, Department of Economics - Peter Cramton, revised 2008.
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Citations

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Cited by:
  1. Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502 Central Bank of Chile.
  2. Vives, Xavier, 2011. "Strategic Complementarity, Fragility, and Regulation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8444, C.E.P.R. Discussion Papers.

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