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Rev Fin 1993; 6:733-764
© 1993 the Society for Financial Studies

Article

Auctions of divisible goods: on the rationale for the treasury experiment

K Back1,z and JF Zender2
1 Olin School of Business, Washington University in St. Louis, St Louis, MO 63130, USA
2 University of Utah, USA
z Corresponding author

Abstract

We compare a sealed-bid uniform-price auction (the Treasury's experimental format) with a sealed bid discriminatory auction (the Treasury's format heretofore), assuming the good is perfectly divisible. We show that the auction theory that prompted the experiment, which assumes single-unit demands, does not adequately describe the bidding game for Treasury securities. Collusive strategies are self-enforcing in uniform-price divisible-good auctions. In these equilibria, the seller's expected revenue is lower than in equilibria of discriminatory auctions.


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