Price Rule and Volatility in Auctions with Resale Markets
This paper offers a model of sealed bid auctions with resale. The policy question whether the seller would fare better under the multiprice rule(where winners pat their actual bids) or the uniprice rule (where winners pay the highest losing bid) has been on the agenda since the 60’s and seen a recent revival. While theory has mostly recommended the uniprice rule, mainly on the argument that it would generate higher revenue, practice has predominantly stay with the multiprice rule. The results here recommend the multiprice rule. They say that, while expected revenue (equivalently, the price level) is an invariant throughout, the range of bids is narrower, (hence the price level less volatile) under the multiprice then under the uniprice rule, the more so the greater the resale component of participation. For auctions of treasury depth shares of public firms to be privatized, or other items, where significant proportions of the issues flow to secondary markets, these results thus support the multiprice rule on grounds of price stability next to revenue equivalence.
KeywordsPublic Firm Secondary Market Symmetric Equilibrium Auction Price Resale Price
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