56 Pages Posted: 8 Jul 2014 Last revised: 15 Aug 2017
Date Written: August 14, 2017
If one pays to play then ex-ante homogeneous bidders bid probabilistically in a simultaneous move game. If they bid, they draw their bid from a non-degenerate left-skewed price distribution. This result generalizes to a setting with two types of players ex ante: low-cost-low-value (low) and high-cost-high-value (high) types. The latter type bids more aggressively and might in fact be the only type to bid. The results explain bidding in Nasdaq by those who are high-frequency traders (HFTs) and those who are not. HFTs turn out to be the high types.
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