Energizing Bidder's Choice in Financial Assets Auctions - An Experimental Investigation

Abstract

The objective of this paper is to investigate the preferences of potential bidders in choosing between uniform and discriminatory auction pricing methods. Many financial assets, particularly government bonds, are issued in an auction. Uniform and discriminatory pricing constitute the two most popular mechanisms used in public auctions. Theoretical papers have not been able to provide an unequivocal preference of one mechanism over the other. This study investigates both bidder choice and the impact of that choice on the outcome of the auction by allowing bidders to choose between the two alternative systems. The majority of the bidders in the survey prefer uniform pricing. Those preferring uniform auctions tend to bid more aggressively than those preferring discriminatory. On average, the proceeds to the issuer were higher under the uniform price mechanism.