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American Economic Review Vol. 100 No. 4 2010

Bidding with Securities: Comment

Yeon‐Koo Che1; Jinwoo Kim2

1 Department of Economics, Columbia University, 420 West 118th Street, New York, NY, 10027, and Yonsei Economic Research Institute. · 2 Department of Economics, Yonsei University, 134 Shinchon-dong Seodaemun-gu, Seoul, 120-749, Korea.

Abstract

Peter DeMarzo, Ilan Kremer, and Andrzej Skrzypacz (2005) analyzed auctions in which bidders compete in securities. They show that a steeper security leads to a higher expected revenue for the seller, and also use this to establish the revenue ranking between standard auctions. In this comment, we obtain the opposite results to DKS's by assuming that a higher return requires a higher investment cost. Given this latter assumption, steeper securities are more vulnerable to adverse selection, and may yield lower expected revenue, than flatter ones.

DOI
10.1257/aer.100.4.1929
Volume
100
Issue
4
Pages
1929-1935
Language
en
Sources
crossref openalex bibtex:phds-export.bib

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