Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets

57 Pages Posted: 14 Jan 2014

See all articles by Herve Boco

Herve Boco

Toulouse Business School

Laurent Germain

Toulouse University, Toulouse Business School

Fabrice Rousseau

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting

Date Written: January 7, 2014

Abstract

This paper analyzes a multi-auction setting in which informed strategic agents are endowed with heterogeneous noisy signals about the liquidation value of a risky asset. We solve for the unique linear equilibrium. One result is that when the variance of the noise is small which leads to a strong correlation between signals, the competition between traders takes the form of a rat race during all the periods of trading. As we increase the level of the noise in the traders’ signals, a waiting game phase appears and the intensity of the rat race, observed only at the last auctions, decreases. When the variance of the noise is very large (implying that the correlation is weak) we only observe a waiting game. Moreover, we study the trade-off between noise and competition.

Keywords: efficiency, asymmetric information, noise, liquidity, adverse selection, competition.

JEL Classification: G14, G24, D43, D82

Suggested Citation

Boco, Herve and Germain, Laurent and Rousseau, Fabrice, Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets (January 7, 2014). Available at SSRN: https://ssrn.com/abstract=2378916 or http://dx.doi.org/10.2139/ssrn.2378916

Herve Boco

Toulouse Business School ( email )

20 Boulevard Lascrosses
Toulouse, 31068
France

Laurent Germain (Contact Author)

Toulouse University, Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31000
France

Fabrice Rousseau

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting ( email )

County Kildare
Ireland
+353 (0) 1 7084568 (Phone)

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