Download This PaperEquilibrium Bid-Price Dispersion
44 Pages Posted: 8 Jul 2014 Last revised: 7 Aug 2020
Date Written: August 5, 2020
Abstract
If bidding in a common-value auction is costly and if bidders do not know how many others are also bidding, all equilibria are in mixed strategies. Participation is probabilistic and bid prices are dispersed. The symmetric equilibrium is unique and yields simple analytic expressions. We use them to, for example, show that bid prices exhibit negative skewness. The expressions are further used to estimate the model based on bidding on an S&P500 security. We find that the number of bidders declined over time, making liquidity supply fragile.
Suggested Citation: Suggested Citation
Jovanovic, Boyan and Menkveld, Albert J., Equilibrium Bid-Price Dispersion (August 5, 2020). Available at SSRN: https://ssrn.com/abstract=2463066 or http://dx.doi.org/10.2139/ssrn.2463066
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