Anglo-Dutch premium auctions in eighteenth-century Amsterdam
AbstractAn Anglo-Dutch premium auction consists of an English auction followed by a Dutch auction, with a cash premium paid to the winner of the first round. We study such auctions used in the secondary debt market in eighteenth-century Amsterdam. This was among the first uses of auctions, or any structured market-clearing mechanism, in a financial market. We find that this market presented two distinct challenges - generating competition and aggregating information. We argue that the Anglo-Dutch premium auction is particularly well-suited to do both. Modeling equilibrium play theoretically, we predict a positive relationship between the uncertainty in a security's value and the likelihood of a second-round bid. Analyzing data on 16,854 securities sold in the late 1700s, we find empirical support for this prediction. This suggests that bidding behavior may have been consistent with (non-cooperative) equilibrium play, and therefore that these auctions were successful at generating competition. We also find evidence suggesting that these auctions succeeded at aggregating information. Thus, the Anglo-Dutch premium auction appears to have been an effective solution to a complex early market design problem.
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Bibliographic InfoPaper provided by London School of Economics and Political Science in its series Open Access publications from London School of Economics and Political Science with number http://eprints.lse.ac.uk/47465/.
Date of creation: 22 Nov 2012
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Other versions of this item:
- van Bochove, Christiaan & Boerner, Lars & Quint, Daniel, 2012. "Anglo-Dutch premium auctions in eighteenth-century Amsterdam," Discussion Papers 2012/3, Free University Berlin, School of Business & Economics.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
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