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

18 Pages Posted: 8 Sep 2009

See all articles by Paul Klemperer

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

Abstract

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".

Keywords: central banking, multi-object auction, simultaneous ascending auction, TARP, term auction, treasury auction

JEL Classification: D44, E58

Suggested Citation

Klemperer, Paul, A New Auction for Substitutes: Central-Bank Liquidity Auctions, 'Toxic Asset' Auctions, and Variable Product-Mix Auctions (August 2009). CEPR Discussion Paper No. DP7395. Available at SSRN: https://ssrn.com/abstract=1469874

Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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