Paper by Albert J. Menkveld accepted for publication in the Journal of Political Economy
The paper “Equilibrium Bid-Price Dispersion" by faculty member Albert J. Menkveld (Vrije Universiteit Amsterdam) and co-author Boyan Jovanovic (New York University, United States) has been accepted for publication in the Journal of Political Economy.
Abstract
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.
Article Citation:
Boyan Jovanovic and Albert J. Menkveld, “Equilibrium Bid-Price Dispersion”, Journal of Political Economy (August 5, 2021), doi.org/10.2139/ssrn.2463066 .