Clock auctions reduce common-value uncertainty and beat sealed-bid formats on efficiency.

Evidence

A frequent motivation for the use of dynamic auctions is reducing common-value uncertainty. In this setting there is a strong common-value element. A security’s value is closely related to its “hold to maturity value,” which is roughly the same for each bidder. Each bidder has an estimate of this value, but the true value is unknown. The dynamic auction, by revealing market supply as the price declines, lets the bidders condition their bids on the aggregate market information. As a result, common-value uncertainty is reduced and bidders will be comfortable bidding more aggressively without falling prey to the winner’s curse—the tendency in a procurement setting of naïve sellers to sell at prices below true value … A principal benefit of the clock auction is the inherent price-discovery feedback mechanism that is absent in any sealed-bid auction format. Specifically, as the auction progresses, participants learn how the aggregate demand changes with price, which allows bidders to update their own strategies and avoid the winner’s curse … Efficiency in the clock auction always exceeded 97%. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 864

Categorization

• DEFINE: Clarifies the clock-auction price-discovery mechanism and the winner’s curse concept that ground the market designers’ proposal.
• XREF: connects to: Simulated auctions can teach students how capital exploits inter-country competition — Rebecca A. Martusewicz, Jeff Edmundson, and John Lupinacci, EcoJustice Education: Toward Diverse,…, 1540