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Auctions with Variable Supply: Uniform Price versus Discriminatory

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Abstract

We examine an auction in which the seller determines the supply after observing the bids. We compare the uniform price and the discriminatory auction in a setting of supply uncertainty. Uncertainty is caused by the interplay of two factors: the seller's private information about marginal cost, and the seller's incentive to sell the profit-maximizing quantity given the received bids. In every symmetric mixed strategy equilibrium, bidders submit higher bids in the uniform price auction than in the discriminatory auction. In the two-bidder case this result extends to the set of rationalizable strategies. As a consequence, we find that the uniform price auction generates higher expected revenue for the seller and higher trade volume.

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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/80.

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Length: 41 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:eth:wpswif:08-80

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Keywords: sealed bid multi-unit auctions; variable supply auctions; discriminatory and uniform price auctions; subgame perfect equilibria; rationalizable strategies;

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References

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  20. Keloharju, Matti & Nyborg, Kjell G & Rydqvist, Kristian, 2002. "Strategic Behaviour and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," CEPR Discussion Papers 3586, C.E.P.R. Discussion Papers.
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Cited by:
  1. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2010. "Trade and welfare: Does industrial organization matter?," Economics Letters, Elsevier, vol. 109(2), pages 85-87, November.
  2. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," CER-ETH Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Damianov, Damian S. & Oechssler, Jörg & Becker, Johannes Gerd, 2010. "Uniform vs. discriminatory auctions with variable supply - experimental evidence," Games and Economic Behavior, Elsevier, vol. 68(1), pages 60-76, January.

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