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

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  • Marco LiCalz
  • Alessandro Pavan

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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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1495.

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Date of creation: Nov 2002
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Handle: RePEc:nwu:cmsems:1495

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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Web page: http://www.kellogg.northwestern.edu/research/math/
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Keywords: uniform-price auction; divisible good; strategic role of the seller; endogenous supply; Treasury and IPO auctions;

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