Long-Lived Private Information and Imperfect Competition

Authors

  • CRAIG W. HOLDEN,

  • AVANIDHAR SUBRAHMANYAM

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    • School of Business, Indiana University, Bloomington, Indiana 47405, and Graduate School of Business, Columbia University, New York, New York 10027, respectively. We are indebted to an anonymous referee, whose comments and suggestions improved the paper considerably. We also thank Mark Bagnoli, Fischer Black, Michael Brennan, Bruno Gerard, Larry Glosten, David Hirshleifer, Pete Kyle, Matthew Spiegel, and Anjan Thakor for helpful discussions and/or comments. All errors are solely our responsibility.

ABSTRACT

We develop a multi-period auction model in which multiple privately informed agents strategically exploit their long-lived information. We show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly. In the limit as the interval between auctions approaches zero, market depth becomes infinite and all private information is revealed immediately. These results are in contrast to those of Kyle (1985) in which the monopolistic informed trader causes his information to be incorporated into prices gradually, and, when the interval between auctions is vanishingly small, market depth is constant over time.

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