Rationing rules and European Central Bank auctions

Theoretical analyses of multi-unit auctions tend to side-step the importanc e of rationing rules by assuming strictly decreasing aggregate demand. Howe ver, under European Central Bank rules, bidders are allowed to submit no mo re than ten price-quantity pairs. So even if the underlying demand is stric tly decreasing, it is likely that several bidders may submit a market-clear ing bid. If at the market-clearing bid, excess demand exists, it is necessa ry to ration how much each bidder receives. The effect on bidding behavior and equilibrium revenues under two distinct rationing rules is explored in this paper. (C) 2001 Elsevier Science Ltd. All rights reserved.