An Empirical Test of Auction Efficiency

Download or read book An Empirical Test of Auction Efficiency written by Pietro Bonaldi and published by . This book was released on 2015 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auction theory has ambiguous implications regarding the relative efficiency of three formats of multiunit auctions: uniform-price, discriminatory-price, and Vickrey auctions. We empirically evaluate the performance of these three auction formats using the bid-level data of the Federal Reserve's purchase auctions of agency mortgage-backed securities (MBS) from June 1, 2014 through November 17, 2014. We estimate marginal cost curves for all dealers, at each auction, based on structural models of the multiunit discriminatory-price auction. Our preliminary results suggest that neither uniform-price nor Vickrey auctions outperform discriminatory-price auctions in terms of the total expenditure. However, they do outperform in terms of efficiency, with efficiency gains around 0.74% of the surplus that dealers extract. We caution that our empirical estimation and analysis involve technical assumptions made about the specific auction mechanism the Federal Reserve uses and how auction participants perceive the auction mechanism, both of which may be distinct from practice and may alter the conclusions substantively.