Bidding with Securities: Auctions and Security Design
We study security-bid auctions in which bidders compete for an asset by bidding with securities. That is, they offer payments that are contingent on the realized value of the asset being sold. Standard auction mechanisms (such as first-price and second-price auctions) are not well defined unless the set of securities is restricted to an ordered set. For example, the seller may require a bidto be exclusively an equity share, or exclusively a debt payment. Given such a restriction, we first ask whether revenue equivalence holds, i.e. whether expected revenues depend upon the auction format. We show that this principle holds if the set of permissible securities is convex. Otherwise, this need not be true. For example, when bidders offer standard debt securities, a second-price auction is superior. On the other hand, if bidders compete on the conversion ratio of convertible debt, a first-price auction yields higher revenues. We then consider the joint problem of choosing both the security and auction design. We show that the optimal mechanism yielding the highest possible expected revenues for the seller is a first-price auction with levered equity. On the other hand, a first-price auction with debt contracts is the worst possible mechanism for the seller. Finally, we examine the case in which the seller cannot commit to a formal mechanism. Instead, he chooses the most attractive bid ex post, based on his beliefs. We show that this procedure yields the lowest possible revenues across all mechanisms
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ken Binmore & Paul Klemperer, 2001.
"The Biggest Auction Ever: the Sale of the British 3G Telecom Licenses,"
2002-W4, Economics Group, Nuffield College, University of Oxford, revised 01 Sep 2001.
- Ken Binmore & Paul Klemperer, 2002. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economic Journal, Royal Economic Society, vol. 112(478), pages C74-C96, March.
- Paul Klemperer & Ken Binmore, 2001. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economics Series Working Papers 2002-W04, University of Oxford, Department of Economics.
- Binmore, Kenneth & Klemperer, Paul, 2002. "The Biggest Auction Ever: The Sale of the British 3G Telecom Licences," CEPR Discussion Papers 3214, C.E.P.R. Discussion Papers.
- Lacker, Jeffrey M & Weinberg, John A, 1989.
"Optimal Contracts under Costly State Falsification,"
Journal of Political Economy,
University of Chicago Press, vol. 97(6), pages 1345-63, December.
- Lacker, J.M., 1989. "Optimal Contracts Under Costly State Falsification," Purdue University Economics Working Papers 956, Purdue University, Department of Economics.
- In-Koo Cho & David M. Kreps, 1997.
"Signaling Games and Stable Equilibria,"
Levine's Working Paper Archive
896, David K. Levine.
- Jean-Jaques Laffont & Jean Tirole, 1985.
"Auctioning Incentive Contracts,"
403, Massachusetts Institute of Technology (MIT), Department of Economics.
- John G. Riley & William Samuelson, 1979.
UCLA Economics Working Papers
152, UCLA Department of Economics.
- Townsend, Robert M., 1979.
"Optimal contracts and competitive markets with costly state verification,"
Journal of Economic Theory,
Elsevier, vol. 21(2), pages 265-293, October.
- Robert M. Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
- KOHLBERG, Elon & MERTENS, Jean-François, .
"On the strategic stability of equilibria,"
CORE Discussion Papers RP
716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Zheng, Charles Z., 2001.
"High Bids and Broke Winners,"
Journal of Economic Theory,
Elsevier, vol. 100(1), pages 129-171, September.
- Peter DeMarzo & Darrell Duffie, 1999. "A Liquidity-Based Model of Security Design," Econometrica, Econometric Society, vol. 67(1), pages 65-100, January.
- Ravid, S. Abraham & Spiegel, Matthew, 1997. "Optimal Financial Contracts for a Start-Up with Unlimited Operating Discretion," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 269-286, September.
- Nachman, David C & Noe, Thomas H, 1994. "Optimal Design of Securities under Asymmetric Information," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 1-44.
- Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
- Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-65, September.
- Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul Milgrom & Robert J. Weber, 1981.
"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Cremer, Jacques, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 746, September.
- Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-45, September.
- John G. Riley, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 409-429.
- J. Riley & E. Maskin, 1981.
"Optimal Auctions with Risk Averse Buyers,"
311, Massachusetts Institute of Technology (MIT), Department of Economics.
- Matthew Rhodes-Kropf & S. Viswanathan, 2000. "Corporate Reorganizations and Non-Cash Auctions," Journal of Finance, American Finance Association, vol. 55(4), pages 1807-1854, 08.
- Ramey, Garey, 1996. "D1 Signaling Equilibria with Multiple Signals and a Continuum of Types," Journal of Economic Theory, Elsevier, vol. 69(2), pages 508-531, May.
- Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
- Martin, Kenneth J, 1996. " The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-46, September.
- Board, Simon, 2007. "Selling options," Journal of Economic Theory, Elsevier, vol. 136(1), pages 324-340, September.
- R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer.
When requesting a correction, please mention this item's handle: RePEc:ecm:nawm04:637. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.