Bidding markets with financial constraints

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks

The Insider's Curse

This paper studies an auction model in which one of the bidders, the insider, has better information about a common component of the value of the good for sale, than the other bidders, the outsiders. Our main result shows that the insider may have incentives to disclose her private information if she faces sufficiently strong competition from the outsiders. We also show that the insider can protect the value of her private information by hiding her presence in the auction to the outsiders. Finally, we analyze the implications of information revelation on the efficiency of the auction and on the auctioneer's expected revenue.auctions, asymmetric information, information disclosure.

When are Signals Complements or Substitutes?

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates com- plementarity and substitutability to a Blackwell comparison of two auxiliary signals. In a setting with a binary state space and binary signals, we find an explicit characteriza- tion that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to more general settings.Information, signals, complementarity, substitutability.

When are signals complements or substitutes?

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates complementarity and substitutability to a Blackwell-comparison of two auxiliary signals. In a special setting with a binary state space and binary, symmetric signals, we find an explicit characterization that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to the general case. Finally, we study implications of complementarity and substitutability for information acquisition and in a second price auction.

Successful Uninformed Bidding

This paper studies multiunit common value auctions with informed and less informed bidders. We show that bidders with less information can bid very aggressively and do surprisingly well in terms of probability of winning and expected revenue. We also show that the degree of aggressiveness and success of bidders with less information is positively related to the number of units for sale. We explain these phenomena in terms of the balance of the winner's curse and the loser's curse and their differential effect on bidders with different quality of information.

When are Signals Complements or Substitutes?

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates com- plementarity and substitutability to a Blackwell comparison of two auxiliary signals. In a setting with a binary state space and binary signals, we find an explicit characteriza- tion that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to more general settings

Essays on auction theory

This Ph.D. Thesis consists of three contributed papers. In the first paper we study multiunit common value auctions with informed and less informed bidders. We show that bidders with less information can bid very aggressively and do surprisingly well in terms of probability of winning and expected revenue. We also show that the degree of aggressiveness and success of bidders with less information is positively related to the number of units for sale. We explain these phenomena in terms of the balance of the winner's curse and the loser's curse and their different effect on bidders with different quality of information. In the second paper we model a situation in which an auctioneer puts up for sale several identical units that have the property of common value for the bidders. One of the bidders, the incumbent, has better information about this common value, than the other bidders, the entrants. We show that in this situation an open ascending auction can give strictly higher expected utility to the entrants, and strictly higher expected revenue to the auctioneer. We provide an intuition for these results based on the different effect of the winner's curse on bidders that have different quality of information. In the last paper we analyse a multistage game of competition among auctioneers. In this game, auctioneers commit to some publicly announced reserve prices, in a first stage, and bidders choose to participate in one of the auctions, in a second stage. We show that the set of Nash equilibrium is non-empty. We also show that one property of the equilibrium set is that when the number of auctioneers and bidders tends to infinity, almost all auctioneers with production cost low enough to trade announce a reserve price equal to their production costs. Our paper confirms previous results for some "limit" versions of the model by McAfee (1993), Peters (1997), and Peters and Severinov (1997)

Essays on auction theory

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Cheap Talk and Strategic Rounding in Libor Submissions

Interbanking rates were, until recently, based on judgmental estimates of borrowing costs. We interpret this as a cheap-talk game that allowed banks to communicate nonverifiable information about their opportunity cost to potential counterparties. Under normal market conditions there is a welfare maximizing equilibrium where banks truthfully disclose their borrowing cost, but, in times of financial stress, only “coarse” equilibria survive. We take this prediction to the data and show that banks round more frequently if the risk of the bank increases. Rounding is also more frequent for the more liquid short-term rates and certain benchmark maturities