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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Andrzej Skrzypacz

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November 2004Bidding With Securities: Auctions and Security Design
with Peter M. DeMarzo, Ilan Kremer: w10891
We study security-bid auctions in which bidders compete by bidding with securities whose payments are contingent on the realized value of the asset being sold. Such auctions are commonly used, both formally and informally. In formal auctions, the seller restricts bids to an ordered set, such as an equity share or royalty rate, and commits to a format, such as first or second-price. In informal settings with competing buyers, the seller does not commit to a mechanism upfront. Rather, bidders offer securities and the seller chooses the most attractive bid, based on his beliefs, ex-post. We characterize equilibrium payoffs and bidding strategies for formal and informal auctions. For formal auctions, we examine the impact of both the security design and the auction format. We define a notion...

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