Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets

Fabrice Rousseau (Department of Economics, Finance and Accounting, National University of Ireland, Maynooth) ; Herve Boco (Toulouse University, Toulouse Business School, France); and Laurent Germain (Toulouse University, Toulouse Business School, France) examine Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets.

ABSTRACT: This paper analyzes a multi-auction setting in which informed strategic agents are endowed with heterogeneous noisy signals about the liquidation value of a risky asset. One result is that when the variance of the noise is small the competition between traders takes the form of a rat race during all the periods of trading. As we increase the level of the noise in the traders’ signals, a waiting game phase appears and the intensity of the rat race, observed only at the last auctions, decreases. In sharp contrast with the previous literature, when the variance of the noise is very large, we only observe a waiting game.