Equilibrium Bid-Price Dispersion

Boyan Jovanovic, Albert J. Menkveld

    Research output: Contribution to journalArticlepeer-review


    If bidding in a pure common-value auction is costly and bidders do not know how many others are also bidding, all equilibria are in mixed strategies. Participation is probabilistic, and bid prices are dispersed. The symmetric equilibrium is unique and yields simple analytic expressions. We use them to, for example, show that bid prices exhibit negative skew-ness. The expressions are further used to estimate the model based on bidding on a Standard & Poor’s 500 security. We find that the number of bidders declined over time, making liquidity supply fragile.

    Original languageEnglish (US)
    Pages (from-to)426-461
    Number of pages36
    JournalJournal of Political Economy
    Issue number2
    StatePublished - Feb 2022

    ASJC Scopus subject areas

    • Economics and Econometrics


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