The Logistic Function Approach to Discriminatory and Uniform Price Treasury Auctions

There has been considerable debate in the literature concerning whether uniform or discriminatory pricing raise more revenue in Treasury Bill auctions. A standard ap-proach has been to examine empirically how revenue changes given a switch from one type to the other. The weakness of this approach is that such a revenue change may be due to changes in economic conditions. This paper is the first to examine the two meth-ods while taking into account changes in economic conditions. To do this, it adopts a three-stage procedure. First, it fits a logistic function to the cumulative bid distribution for each auction. Second, it estimates two sets of equations relating the logistic function parameters to economic conditions, one for uniform and one for discriminatory pricing, on the assumption that T-bill offerings by the government are exogenous. And third, using the estimated equations, it predicts how much revenue would have been raised from discriminatory price auctions if instead uniform pricing had been used, holding economic condition constant, and vice versa. The data employed are for Turkish Trea-sury auctions from 2000-2002, in the middle of which the Turkish Treasury switched auction types. The results point to the superiority of the discriminatory price auction, but also cast doubt on the assumption that government T-bill offerings are exogenous