Security Design Under Common-Value Competition

Yue Yuan

doi:10.3982/ecta21366

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Security Design Under Common-Value Competition

2026-09-23

Yue Yuan *

DOI：10.3982/ecta21366

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Abstract

En 中文

This paper studies security design by bidders with dispersed information about a common-value investment opportunity. Among a broad set of securities, bidders offer debt financing—the flattest securities. A first reason is that debt mitigates bidders' exposure to the winner's curse when there are two bidders. Second, the entrepreneur either has an informational advantage initially or gains one by inferring from the bids, and is more likely to select debt offers when optimistic about the project. While a bidder's choice of security also has a signaling effect, this effect is dominated by the winner's curse and informed-selection effects, and does not affect the equilibrium outcome. These results contrast sharply with security design by a monopolistic investor, as well as with DeMarzo, Kremer, and Skrzypacz's (2005) results under private-value competition. The entrepreneur's ability to commit to an ordered set of securities does not improve revenue.

Keywords:

Security design

security-bid auction

common values

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