Competition among Sellers in Securities Auctions

Gorbenko, Alexander S.; Malenko, Andrey

doi:10.1257/aer.101.5.1806

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American Economic Review: Vol. 101 No. 5 (August 2011)

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Competition among Sellers in Securities Auctions

Article Citation

Gorbenko, Alexander S., and Andrey Malenko. 2011. "Competition among Sellers in Securities Auctions." American Economic Review, 101(5): 1806-41.

DOI: 10.1257/aer.101.5.1806

Abstract

We study simultaneous security-bid second-price auctions with competition among sellers for potential bidders. The sellers compete by designing ordered sets of securities that the bidders can offer as payment for the assets. Upon observing auction designs, potential bidders decide which auctions to enter. We characterize all symmetric equilibria and show that there always exist equilibria in which auctions are in standard securities or their combinations. In large markets the unique equilibrium is auctions in pure cash. We extend the model for competition in reserve prices and show that binding reserve prices never constitute equilibrium as long as equilibrium security designs are not call options. (JEL D44, D82, G10)

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Authors

Gorbenko, Alexander S. (London Business School)
Malenko, Andrey (MIT)

JEL Classifications

D44: Auctions
D82: Asymmetric and Private Information
G10: General Financial Markets: General (includes Measurement and Data)