A New Auction for Substitutes: Central-Bank Liquidity Auctions, “Toxic Asset” Auctions, and Variable Product-Mix Auctions.

Working paper

I describe a new static (sealed-bid) auction for differentiated goods—the “Product-Mix Auction”. Bidders bid on multiple assets simultaneously, and bidtakers choose supply functions across assets. The auction yields greater efficiency, revenue, information, and trade than running multiple separate auctions. It is also often simpler to use and understand, and less vulnerable to collusion, than a simultaneous multiple round auction. I designed it after the 2007 Northern Rock bank-run to help the Bank of England fight the credit crunch; in 2008 the U.S. Treasury planned using a related design to buy “toxic assets”; it may be used to purchase electricity.

Authors: Klemperer, P

• Publisher: Nuffield College (University of Oxford)
• Series: Working Papers
• Publication date: 2009-01-01
• Language: English