Collusion in the Auction Market for Treasury Bills

Abstract

I N TESTIMONY before the Joint Economic Committee, Milton Friedman has argued that the discriminatory pricing practices followed in the weekly auction of Treasury bills limit the market to specialists who are forced to collude.2 Two recent papers by Brimmer and Goldstein have criticized this conclusion. However, Professor Friedman has generally maintained his position in his latest note on the subject.3 The last three papers have also been concerned with the effect of discriminatory pricing on the Treasury's auction revenues. It will be argued here, first, that Friedman uses the Treasury's data on auction prices incorrectly in support of his contention of collusion; and second that, contrary to Friedman's assumption, participation in the auction is not limited to dealers and sufficient market information is available to enable anyone to place a rational bid. As both Brimmer and Goldstein base their arguments on Friedman's interpretation of