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Anglo-Dutch premium auctions in eighteenth-century Amsterdam

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  • van Bochove, Christiaan
  • Boerner, Lars
  • Quint, Daniel

Abstract

This paper studies Anglo-Dutch premium auctions used in the secondary market for financial securities in eighteenth-century Amsterdam, Europe's financial capital at the time. An 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 regardless of the second-round outcome. To rationalize the introduction and continued use of this auction format, we need to determine whether bidding behavior was consistent with equilibrium play. We model this auction format theoretically, and show that the likelihood of a bid in the second round should be higher when there is greater uncertainty about the value of the security being sold. We then test this prediction on data from 16,854 securities sold at auction on 469 days over an 18-year period in the late 1700s; using several different proxies for the uncertainty of a given security's value, we find support for this theoretical prediction. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2012/3.

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Date of creation: 2012
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Handle: RePEc:zbw:fubsbe:20123

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  1. Alvin E. Roth, 2008. "What Have We Learned from Market Design?," Innovations: Technology, Governance, Globalization, MIT Press, vol. 3(1), pages 119-147, January.
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1, March Cit.
  3. De Marchi, Neil, 1995. "The role of Dutch auctions and lotteries in shaping the art market(s) of 17th century Holland," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 203-221, October.
  4. Helmuts Azacis & Roberto Burguet, 2005. "Incumbency and Entry in Licence Auctions: The Anglo-Dutch Auctions Meets other Simple Alternatives," Working Papers 223, Barcelona Graduate School of Economics.
  5. Carlos, Ann M. & Neal, Larry, 2011. "Amsterdam and London as financial centers in the eighteenth century," Financial History Review, Cambridge University Press, vol. 18(01), pages 21-46, April.
  6. Börner, Lars & Quint, Daniel, 2010. "Medieval matching markets," Discussion Papers 2010/31, Free University Berlin, School of Business & Economics.
  7. Börner, Lars & Hatfield, John William, 2010. "The economics of debt clearing mechanisms," Discussion Papers 2010/27, Free University Berlin, School of Business & Economics.
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