Information, Stochastic Dominance and Bidding: the Case of Treasury Auctions
We explore the link between informativeness of signals, stochastic dominance and equilibrium bids in a multi-unit auction with risk averse bidders. We show that for a particular class of signal distributions, there is a one-to-one relation between informativeness and conditional rst-order stochastic dominance, so that higher degree of informativeness in the signal-fundamental distribution corresponds to higher bids and therefore higher revenues. Finally, we consider a Walrasian bookbuilding auction and show that in such an auction, bidders may collude to push the price down to the seller's reservation price, regardless of the signals.
Area: Capital Structure and Corporate Finance
Keywords: Common value auctions, informativeness, stochastic dominance
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