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Multiple Unit Auctions and Short Squeezes


Nyborg, K G; Strebulaev, Ilya A (2003). Multiple Unit Auctions and Short Squeezes. Review of Financial Studies, 17(2):545-580.

Abstract

This article develops a theory of multiunit auctions where short squeezes can occur in the secondary market. Both uniform and discriminatory auctions are studied and bidders can submit multiple bids. We show that bidders with short and long preauction positions have different valuations in an otherwise common value setting. Discriminatory auctions lead to more short squeezing and higher revenue than uniform auctions, ceteris paribus. Asymptotically, as the auction size approaches infinity, the two formats lead to equivalent outcomes. Shorts employ more aggressive equilibrium bidding strategies. Most longs strategically choose to be passive. Free riding on a squeeze by small, long players has no impact on these results, but affects revenue in discriminatory auctions.

Abstract

This article develops a theory of multiunit auctions where short squeezes can occur in the secondary market. Both uniform and discriminatory auctions are studied and bidders can submit multiple bids. We show that bidders with short and long preauction positions have different valuations in an otherwise common value setting. Discriminatory auctions lead to more short squeezing and higher revenue than uniform auctions, ceteris paribus. Asymptotically, as the auction size approaches infinity, the two formats lead to equivalent outcomes. Shorts employ more aggressive equilibrium bidding strategies. Most longs strategically choose to be passive. Free riding on a squeeze by small, long players has no impact on these results, but affects revenue in discriminatory auctions.

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19 citations in Web of Science®
24 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:11 August 2003
Deposited On:21 May 2015 09:18
Last Modified:05 Apr 2016 19:14
Publisher:Oxford University Press
ISSN:1465-7368
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1093/rfs/hhg038
Other Identification Number:merlin-id:11963

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