TY - JOUR
T1 - Bidding with securities
T2 - Auctions and security design
AU - Demarzo, Peter M.
AU - Kremer, Ilan
AU - Skrzypacz, Andrzej
PY - 2005/9
Y1 - 2005/9
N2 - We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset's realized value. In formal security-bid auctions, the seller restricts the security design to an ordered set and uses a standard auction format (e.g., first- or second-price). In informal settings, bidders offer arbitrary securities and the seller chooses the most attractive bid, based on his beliefs, ex post. We characterize equilibrium and show that steeper securities yield higher revenues, that auction formats can be ranked based on the security design, and that informal auctions lead to the lowest possible revenues.
AB - We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset's realized value. In formal security-bid auctions, the seller restricts the security design to an ordered set and uses a standard auction format (e.g., first- or second-price). In informal settings, bidders offer arbitrary securities and the seller chooses the most attractive bid, based on his beliefs, ex post. We characterize equilibrium and show that steeper securities yield higher revenues, that auction formats can be ranked based on the security design, and that informal auctions lead to the lowest possible revenues.
UR - http://www.scopus.com/inward/record.url?scp=29544450628&partnerID=8YFLogxK
U2 - 10.1257/0002828054825475
DO - 10.1257/0002828054825475
M3 - Article
AN - SCOPUS:29544450628
SN - 0002-8282
VL - 95
SP - 936
EP - 959
JO - American Economic Review
JF - American Economic Review
IS - 4
ER -