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Auctions of Homogeneous Goods: A Case for Pay-as-Bid

Marek Pycia and Kyle Woodward

No 15656, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The pay-as-bid (or discriminatory) auction is a prominent format for selling homogenous goods such as treasury securities and commodities. We prove the uniqueness of its pure-strategy Bayesian Nash equilibrium and establish a tractable representation of equilibrium bids. Building on these results we analyze the optimal design of pay-as-bid auctions, as well as uniform-price auctions (the main alternative auction format), allowing for asymmetric information. We show that supply transparency and full disclosure are optimal in pay-as-bid, though not necessarily in uniform-price; pay-as-bid is revenue dominant and might be welfare dominant; and, under assumptions commonly imposed in empirical work, the two formats are revenue and welfare equivalent.

Date: 2021-01
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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