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Tilting the Supply Schedule to Enhance Competition in Uniform-Price Auctions

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Author Info
Marco LiCalzi (Department of Applied Mathematics, University of Venice)
Alessandro Pavan (Department of Economics, Northwestern University)

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Abstract

Uniform-price auctions of a divisible good in fixed supply admit underpricing equilibria, where bidders submit high inframarginal bids to prevent competition on prices. The seller can obstruct this behavior by tilting her supply schedule and making the amount of divisible good on offer change endogenously with its (uniform) price. Precommitting to an increasing supply curve is a strategic instrument to reward aggressive bidding and enhance expected revenue. A fixed supply may not be optimal even when accounting for the cost to the seller of issuing a quantity different from her target supply.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.22.

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Date of creation: Mar 2003
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Handle: RePEc:fem:femwpa:2003.22

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Related research
Keywords: Uniform-price auction; divisible good; strategic role of the seller; endogenous supply; Treasury and IPO auctions;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998. [Downloadable!]
  2. Kandel, Shmuel & Sarig, Oded & Wohl, Avi, 1999. "The Demand for Stocks: An Analysis of IPO Auctions," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(2), pages 227-47.
  3. Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2003. "Strategic Behavior and Underpricing in Uniform Price Auctions," Working Papers 2003.25, Fondazione Eni Enrico Mattei. [Downloadable!]
  4. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer, vol. 5(2), pages 337-51, March.
  5. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1996. "Collusion in Uniform-Price Auctions: Experimental Evidence and Implications for Treasury Auctions," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(3), pages 757-85. [Downloadable!] (restricted)
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  6. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November. [Downloadable!] (restricted)
  7. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November. [Downloadable!] (restricted)
  8. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June. [Downloadable!] (restricted)
  9. Tenorio, Rafael, 1997. "Some evidence on strategic quantity reduction in multiple unit auctions," Economics Letters, Elsevier, vol. 55(2), pages 209-213, August. [Downloadable!] (restricted)
  10. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, vol. 73(1), pages 29-34, October. [Downloadable!] (restricted)
  11. Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2005. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," Journal of Finance, American Finance Association, vol. 60(4), pages 1865-1902, 08. [Downloadable!] (restricted)
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  12. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(4), pages 733-64. [Downloadable!] (restricted)
  13. Biais, Bruno & Faugeron-Crouzet, Anne Marie, 2002. "IPO Auctions: English, Dutch, ... French, and Internet," Journal of Financial Intermediation, Elsevier, vol. 11(1), pages 9-36, January. [Downloadable!] (restricted)
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  14. Kremer, Ilan & Nyborg, Kjell G, 2004. "Underpricing and Market Power in Uniform Price Auctions," CEPR Discussion Papers 4363, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Yvan Lengwiler, 1998. "The multiple unit auction with variable supply," Finance and Economics Discussion Series 1998-28, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maurice Doyon & Lota Dabio Tamini & Virginie Simard & Kent Messer & Harry M. Kaiser, 2006. "L’économie expérimentale pour l’analyse de modifications au système centralisé de vente du quota laitier au Québec," CIRANO Working Papers 2006s-23, CIRANO. [Downloadable!]
  2. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2005. "Equilibrium and inefficiency in fixed rate tenders," Working Paper Series 554, European Central Bank. [Downloadable!]
  3. Xavier Vives, 2008. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Robert Jörin & Yvan Lengwiler, 2004. "Learning from Financial Markets: Auctioning Tariff-Rate Quotas in Agricultural Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 521-541, December. [Downloadable!]
  5. Bourjade, Sylvain, 2003. "Strategic Price Discounting and Rationing in Uniform Price Auctions
    [Rationing as a Strategic Tool in Uniform Price Auctions]    ," MPRA Paper 7260, University Library of Munich, Germany, revised Oct 2007. [Downloadable!]
    Other versions:
  6. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2006. "Declining valuations and equilibrium bidding in central bank refinancing operations," Working Paper Series 668, European Central Bank. [Downloadable!]
    Other versions:
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