Paper by Albert J. Menkveld accepted for publication in the Journal of Political Economy
If bidding in a common-value auction is costly and if bidders do not know how many others are also bidding, all equilibria are in mixed strategies. Participation is probabilistic and bid prices are dispersed. The symmetric equilibrium is unique and yields simple analytic expressions. We use them to, for example, show that bid prices exhibit negative skewness. The expressions are further used to estimate the model based on bidding on an S&P500 security. We find that the number of bidders declined over time, making liquidity supply fragile.
Boyan Jovanovic and Albert J. Menkveld, “Equilibrium Bid-Price Dispersion”, Journal of Political Economy (August 5, 2021), doi.org/10.2139/ssrn.2463066 .