Political Science Commons^™

Bidding Theory And The Treasury Bill Auction: Does Price Discrimination Increase Bill Prices?, Vernon L. Smith

Economics Faculty Articles and Research

This paper is not directed to the question of whether the Treasury should or should not practice in the public sector what the Clayton Act prohibits in the private sector. The paper is concerned exclusively with the theoretical question of whether the Treasury would necessarily receive higher prices by employing price discrimination than it could get by selling the issues at a single price. From a theory of bidding under uncertainty, which seems to apply naturally to the Treasury auction, it will be shown that buyers may be expected to enter lower bids under price discrimination than they would for …