Discriminatory Auctions in Which the Seller Has Discretion

44 Pages Posted: 12 May 2004

See all articles by Jörg Rocholl

Jörg Rocholl

ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: May 10, 2004

Abstract

This paper examines the results of 93 discriminatory German Treasury auctions between 1998 and 2002. It documents the seller's use of discretion and its influence on auction outcomes and bidding strategies. The evidence suggests that the seller uses its discretion frequently and substantially. It does not maximize revenues in a single-period game, but moves up in the competitive demand curve to set the auction price close to the market price. Bidders do not make profits in German auctions, while their bidding strategies reflect the uncertainty created by the seller's discretion. The paper extends and tests the multi-unit auction model by Lengwiler (1999). This predicts that the market-clearing price should be independent of the bidding strategies and exclusively depend on the seller's marginal cost. The results in this paper broadly support this prediction.

Keywords: Treasury securities, discretion, discriminatory auctions

JEL Classification: G18, H63

Suggested Citation

Rocholl, Joerg, Discriminatory Auctions in Which the Seller Has Discretion (May 10, 2004). Available at SSRN: https://ssrn.com/abstract=545242 or http://dx.doi.org/10.2139/ssrn.545242

Joerg Rocholl (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin
Germany

HOME PAGE: http://www.esmt.org/en/159244

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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