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Bidding With Securities: Comment

  • Yeon-Koo Che

    ()

    (Columbia University - Department of Economics)

  • Jinwoo Kim

    ()

    (Yonsei University - School of Economics)

Peter DeMarzo, Ilan Kremer and Andrzej Skrzypacz (2005, henceforth DKS) analyzed auctions in which bidders compete in securities. They show that a steeper security leads to a higher expected revenue for the seller, and also use this to establish the revenue ranking between standard auctions. In this comment, we obtain the opposite results to DKS's by assuming that a higher return requires a higher investment cost. Given this latter assumption, steeper securities are more vulnerable to adverse selection, and may yield lower expected revenue, than flatter ones.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0809-10.

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Date of creation: 2009
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Handle: RePEc:clu:wpaper:0809-10
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  1. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, vol. 100(1), pages 129-171, September.
  2. Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-65, September.
  3. Simon Board, 2007. "Bidding into the Red: A Model of Post-Auction Bankruptcy," Journal of Finance, American Finance Association, vol. 62(6), pages 2695-2723, December.
  4. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-45, September.
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