The Czechoslovak Privatization Auction: An Empirical Investigation

The 1992 Czechoslovak mass-privatization program resembled a multiround Walrasian auction with tatonnement in which participants, endowed with points, bid simultaneously for non-uniform products, i.e., shares. The creation of this artificial primary market provides economists with a unique opportunity to investigate empirically (1) the role and aims of the auctioneer in a politically-motivated giveaway scheme, (2) the price-setting mechanism, and (3) the bidding strategies and rationality of the auction's participants. Unlike more conventional auctions, price discovery was only a secondary motive to the auctioneer. The principal aim was to transfer the shares quickly to the investing public in a politically acceptable manner. We show that the price-updating rules adopted alter each bidding round did achieve the auctioneer's principal aim, but they also served to inject noise. The results suggest an inherent tradeoff between socially acceptable outcomes in such auctions and efficient price discovery.