Discriminatory Auctions in Which the Seller Has Discretion
44 Pages Posted: 12 May 2004
Date Written: May 10, 2004
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: Suggested Citation