Online hybrid Dutch auction approach for selling toxic assets under asymmetric bidders and the possibility of collusion

The COVID-19 pandemic-related economic recession causes a noticeable risk to banks with a substantial increase in toxic assets, including non-performing loans (NPLs). Despite the downsides, the pandemic is accelerating the spread of e-commerce. The best and most effective solution for resolving toxic assets would be a well-designed auction. Due to the fact, this represents a significant opportunity to tackle the next wave of NPLs via e-auctions. This study aims to model, for the first time, the Hybrid Dutch Auction (HDA) for online selling of NPLs. The HDA includes Dutch, Sealed-bid, and Best bid stages, and their equilibria are derived via backward induction. Theoretically and with a simulation, the study compares the HDA with the Amsterdam, the optimal auction, and the first-price and English auctions in symmetric and asymmetric environments. The results indicate that the HDA outperforms the other formats under different competition levels and the possibility of collusion.

Automated summary

The study models the Hybrid Dutch Auction (HDA) for selling non-performing loans (NPLs) online and compares it with other auction formats. The results show that the HDA outperforms other formats under different competition levels and the possibility of collusion.