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Auctions with Endogenous Supply and the Walrasian Outcome

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Author Info
Damian S. Damianov () (Keele University, Centre for Economic Research and School of Economic and Management Studies)

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Abstract

In this paper we study a special class of mechanisms for price formation on mo-nopolistic markets: multiunit auctions with endogenous supply. We formally define these trade mechanisms as dynamic market games and characterize their subgame perfect equilibria. Conditions on the pricing rule are provided, which guarantee that the strategic equilibria of these market forms are competitive. The discriminatory auction is found to have Walrasian equilibria only, whereas the uniform price auction has additional non-Walrasian equilibria. The presented models provide a strategic foundation of the competitive equilibrium paradigm. We discuss some parallels of our results to Pigou's (1920) discussion on monopoly pricing.

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Publisher Info
Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/12.

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Length: 27 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:kee:kerpuk:2006/12

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

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Related research
Keywords: Monopoly; Endogenous supply auctions; Competitive equilibrium; Subgame perfect equilibrium; Strategic market games.;

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly

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References listed on IDEAS
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. Simon, Leo K, 1984. "Bertrand, the Cournot Paradigm and the Theory of Perfect Competition," Review of Economic Studies, Blackwell Publishing, vol. 51(2), pages 209-30, April. [Downloadable!] (restricted)
  2. John Wooders, 1997. "Equilibrium in a market with intermediation is Walrasian," Review of Economic Design, Springer, vol. 3(1), pages 75-89. [Downloadable!] (restricted)
  3. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November. [Downloadable!] (restricted)
  4. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April. [Downloadable!] (restricted)
  5. Benassy, Jean-Pascal, 1986. "On Competitive Market Mechanisms," Econometrica, Econometric Society, vol. 54(1), pages 95-108, January. [Downloadable!] (restricted)
    Other versions:
  6. Daniel Heller & Yvan Lengwiler, 2001. "Should the Treasury Price Discriminate?. A Procedure for Computing Hypothetical Bid Functions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 413-, September.
  7. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November. [Downloadable!] (restricted)
  8. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002. [Downloadable!]
  9. Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Blackwell Publishing, vol. 46(2), pages 217-25, April. [Downloadable!] (restricted)
  10. Wilson, Robert B, 1978. "Competitive Exchange," Econometrica, Econometric Society, vol. 46(3), pages 577-85, May. [Downloadable!] (restricted)
  11. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October. [Downloadable!] (restricted)
  12. 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)
  13. Ilan Kremer & Kjell G. Nyborg, 2004. "Divisible-Good Auctions: The Role of Allocation Rules," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 147-159, Spring.
  14. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer. [Downloadable!] (restricted)
  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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