We estimate the marginal cost curve of each dealer in each auction, based on structural models of the multiunit discriminatory-price auction.
Auction theory has ambiguous implications regarding the relative performance of three formats of multiunit auctions: uniform-price, discriminatory-price and Vickrey auctions. We evaluate the performance of these three auction formats using bid-level data of the Federal Reserve’s purchase auctions of agency MBS from June 2014 through November 2014.
Our results suggest that neither uniform-price nor Vickrey auctions outperform discriminatory-price auctions in terms of the total expenditure. However, Vickrey auctions outperform discriminatory-price auctions in terms of efficiency, with the efficiency gain around 0.74% of the surplus that dealers extract on average.
To the best of our knowledge, this paper provides the first structural analysis of the auctions used by the Federal Reserve in implementing its monetary policies.
