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A New Auction for Substitutes: Central-Bank Liquidity Auctions, “Toxic Asset” Auctions, and Variable Product-Mix Auctions

  • Paul Klemperer

    ()

    (Nuffield College, University of Oxford, Oxford)

I describe a new static (sealed-bid) auction for multiple substitute goods. As in a two-sided simultaneous multiple round auction (SMRA), bidders bid on multiple assets simultaneously, and bid-takers choose supply functions across assets. The auction yields more efficiency, revenue, information, and trade than running multiple separate auctions, but is often simpler to use and understand, and less vulnerable to collusion, than a SMRA. I designed it after the 2007 Northern Rock bank run to help the Bank of England fight the credit crunch; in 2008 the U.S. Treasury planned (but later cancelled) using a related design to buy “toxic assets”.

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File URL: http://www.nuffield.ox.ac.uk/economics/papers/2009/w6/BoeTarp28_7_09.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2009-W06.

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Length: 15 pages
Date of creation: 01 Jul 2009
Date of revision:
Handle: RePEc:nuf:econwp:0906
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Robert A. Mundell & Paul J. Zak, 2005. "Introduction," Chapters, in: International Monetary Policy after the Euro, chapter 1 Edward Elgar.
  2. Lawrence M. Ausubel & Peter Cramton & Emel Filiz-Ozbay & Nathaniel Higgins & Erkut Ozbay & Andrew Stocking, 2009. "Common-Value Auctions with Liquidity Needs: An Experimental Test of a Troubled Assets Reverse Auction," Papers of Peter Cramton 09cvawln, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  3. Milgrom, Paul, 1998. "Putting auction theory to work : the simultaneous ascending auction," Policy Research Working Paper Series 1986, The World Bank.
  4. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers 2581, C.E.P.R. Discussion Papers.
  5. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
  6. Ilan Kremer, 2004. "Underpricing and Market Power in Uniform Price Auctions," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 849-877.
  7. Crawford, Vincent P & Knoer, Elsie Marie, 1981. "Job Matching with Heterogeneous Firms and Workers," Econometrica, Econometric Society, vol. 49(2), pages 437-50, March.
  8. Paul Klemperer & Margaret Meyer, 1986. "Price Competition vs. Quantity Competition: The Role of Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 618-638, Winter.
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