Dispersion and Skewness of Bid Prices

Albert Menkveld and Boyan Jovanovic ()

No 1395, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Competitive bidding by homogeneous agents in a first-price auction can yield a non-degenerate bid price distribution. This price dispersion is the unique equilibrium in a setting where bidders “pay to play.†Ex ante, bidders decide simultaneously on whether to play or not. Ex post, those who play submit their bid simultaneously not knowing who else is in the market. The price-dispersion result is applied to high-frequency bidding in limit-order markets. The parsimonious model fits the bid-price dispersion for S&P 500 stocks remarkably well.

Date: 2016
New Economics Papers: this item is included in nep-com and nep-mst
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