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Multiple Unit Auctions and Short Squeezes

Author

Listed:
  • Kjell G. Nyborg

    (London Business School and CEPR)

  • Ilya A. Strebulaev

    (London Business School)

Abstract

This paper develops a theory of multiple unit auctions with short squeezes in the post- auction market. This is especially relevant for financial and commodity markets where players may enter the auction with established forward positions. We study how a potential short squeeze impacts on bidders' strategies and auction performance. Conversely, we also study how the design of the auction affects the incidence of short squeezes. In particular, we model both uniform price and discriminatory price auctions in a true multiple unit setting, where bidders can submit multiple bids for multiple units. Our model is cast in what appears to be a common value framework. However, we show that the possibility of a short squeeze introduces different valuations of the to-be-auctioned asset between short and long bidders.

Suggested Citation

  • Kjell G. Nyborg & Ilya A. Strebulaev, 2003. "Multiple Unit Auctions and Short Squeezes," Working Papers 2003.27, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2003.27
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689.
    3. 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(2), pages 255-289, June.
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    More about this item

    Keywords

    Multiple unit auction; uniform auction; discriminatory auction; treasury auction; repo auction; short squeeze; market manipulation; market power;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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