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American Economic Review: Vol. 100 No. 4 (September 2010)

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Bidding with Securities: Comment

Article Citation

Che, Yeon-Koo, and Jinwoo Kim. 2010. "Bidding with Securities: Comment." American Economic Review, 100(4): 1929-35.

DOI: 10.1257/aer.100.4.1929

Abstract

Peter DeMarzo, Ilan Kremer, and Andrzej Skrzypacz (2005) 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. (JEL D44 )

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Authors

Che, Yeon-Koo (Columbia U and Yonsei Economic Research Institute, Yonsei U)
Kim, Jinwoo (Yonsei U)

JEL Classifications

D44: Auctions


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