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Discriminatory versus uniform-price auctions

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  • Zoltán Monostori

    ()
    (Magyar Nemzeti Bank (the central bank of Hungary))

Abstract

The purpose of this paper is to compare the two auction techniques (discriminatory and uniform-price auctions) most commonly used for the sale of securities. Literature tends to analyze methods from the aspect of the expected revenue from the auction. Theoretical models arrive at different rankings for expected revenue; however, they do reveal the relationship between the bids submitted and the auction technique. These results are confirmed both by ‘laboratory’ experiments and the empirical evidence of real-world auctions. The latter may also provide a robust answer to the question of expected revenue; the uniform-price format coming out as the more beneficial for the Treasury. Still, at present the global majority of issuers of government bonds use the discriminatory-price format and central bank instruments also tend to be sold in this format. This is because issuers may have considerations other than expected revenue.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2014/111.

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Length: 36 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:mnb:opaper:2014/111

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Keywords: auction; central bank auctions; treasury auctions; discriminatory auctions; uniform-price auctions;

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  1. Tenorio, Rafael, 1993. "Revenue Equivalence and Bidding Behavior in a Multi-unit Auction Market: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 302-14, May.
  2. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  3. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
  4. Umlauf, Steven R., 1993. "An empirical study of the Mexican Treasury bill auction," Journal of Financial Economics, Elsevier, vol. 33(3), pages 313-340, June.
  5. Szatmári, Alexandra, 1996. "Aukciók, avagy a képbe kerül, ha a Louvre a képbe kerül?," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 303-314.
  6. Jaime F. Zender & James J.D. Wang, 2002. "Auctioning divisible goods," Economic Theory, Springer, vol. 19(4), pages 673-705.
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