Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
Home

About this journal
   Aims and scope

   Editorial board

Submit your article

Archive

Search

Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Standard Auctions with Security Bids

Vol.24, No.1, March , 54–71



  •   (Seoul National University)

PDF
Abstract  

Peter DeMarzo, Ilan Kremer and Andrzej Skrzypacz (2005) study auctions where bidders compete in securities. As the main results, they show that: a steeper security generates a higher revenue for the seller; the revenue ranking between the first-price and second-price auction depends on the steepness of security; and the first-price auction combined with call option achieves the highest revenue among a general set of auction mechanisms. As pointed out by Che and Kim (2010), using steeper securities can cause the adverse selection problem and reduce the seller's revenue, in case a bidder who expects a higher return must incur a higher investment cost. While the analysis of Che and Kim (2010) focuses on the second-price auction, this paper analyzes the first-price auction to show that it is plagued by the same problem and in fact more vulnerable than the second-price auction to the adverse selection problem, which may lead to a reversal of the DKS's revenue ranking between the two auctions.


Keywords
   Auctions, Security design, Adverse selection

JEL classification codes
   D44, G32, G34
Links

KCI list
Korean ES
JETEM at SCOPUS

Powered by MathJax