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Discriminatory auctions with seller discretion: evidence from German treasury auctions

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  • Rocholl, Jörg
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    Abstract

    This paper examines the results of 93 discriminatory German Treasury auctions between 1998 and 2002. It documents the seller's use of discretion and its influence on auction outcomes and bidding strategies. The evidence suggests that the seller uses its discretion frequently and substantially. It does not maximize revenues in a single-period game, but moves up in the competitive demand curve to set the auction price close to the market price. Bidders do not make profits in German auctions on average, while their bidding strategies reflect the uncertainty created by the seller's discretion. The paper extends and tests the multi-unit auction model by Lengwiler (1999). The empirical evidence is consistent with the implication that the market-clearing price depends on the seller's marginal cost rather than on the submitted demand. --

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    Bibliographic Info

    Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,15.

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    Date of creation: 2005
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    Handle: RePEc:zbw:bubdp1:3374

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    Keywords: Discriminatory auctions; Winner's curse; Seller discretion;

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    1. Keloharju, Matti & Nyborg, Kjell G. & Rydqvist, Kristian, 2004. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt6v17p79w, Anderson Graduate School of Management, UCLA.
    2. Yvan Lengwiler, 1999. "The multiple unit auction with variable supply," Economic Theory, Springer, Springer, vol. 14(2), pages 373-392.
    3. Hoidal Bjonnes, Geir, 2001. "Winner's Curse in Discriminatory Price Auctions: Evidence from the Norwegian Treasury Bill Auctions," SIFR Research Report Series, Institute for Financial Research 3, Institute for Financial Research.
    4. Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2003. "Strategic Behavior and Underpricing in Uniform Price Auctions," Working Papers, Fondazione Eni Enrico Mattei 2003.25, Fondazione Eni Enrico Mattei.
    5. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, Elsevier, vol. 42(1), pages 63-104, September.
    6. Saikat Nandi, 1997. "Treasury auctions: what do the recent models and results tell us?," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 4, pages 4-15.
    7. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(2), pages 394-424, April.
    8. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, Elsevier, vol. 73(1), pages 29-34, October.
    9. Cammack, Elizabeth B, 1991. "Evidence on Bidding Strategies and the Information in Treasury Bill Auctions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(1), pages 100-130, February.
    10. Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(3), pages 117-134, Summer.
    11. Goldreich, David, 2003. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4105, C.E.P.R. Discussion Papers.
    12. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
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    Cited by:
    1. Damian S. Damianov & Johannes Gerd Becker, 2008. "Auctions with Variable Supply: Uniform Price versus Discriminatory," CER-ETH Economics working paper series 08/80, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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