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Strategic Price Discounting and Rationing in Uniform Price Auctions

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  • Bourjade, Sylvain

Abstract

Uniform price auctions admit a continuum of collusive seeming equilibria due to bidders' market power. In this paper, I modify the auction rules in allowing the seller to ration strategic bidders in order to ensure small bidders' participation. I show that many of these "bad" equilibria disappear when strategic bidders do not know small bidders' willingness to pay. Moreover, when the seller is unconstrained in the quantity she can allocate to small bidders, the unique equilibrium price is the highest that the seller could get.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7260.

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Date of creation: Mar 2003
Date of revision: Oct 2007
Handle: RePEc:pra:mprapa:7260

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Keywords: Uniform price Auctions; Treasury Auctions; IPO; Rationing;

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  8. Kremer, Ilan & Nyborg, Kjell G, 2004. "Underpricing and Market Power in Uniform Price Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4363, C.E.P.R. Discussion Papers.
  9. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, Financial Management Association, vol. 33(3), Fall.
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  15. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, Elsevier, vol. 14(2), pages 94-102, April.
  16. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, Elsevier, vol. 42(1), pages 63-104, September.
  17. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, Elsevier, vol. 15(1-2), pages 187-212.
  18. 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.
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  20. McAdams, David, 2007. "Adjustable supply in uniform price auctions: Non-commitment as a strategic tool," Economics Letters, Elsevier, Elsevier, vol. 95(1), pages 48-53, April.
  21. 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.
  22. Yakov Amihud & Haim Mendelson & Jun Uno, 1999. "Number of Shareholders and Stock Prices: Evidence from Japan," Journal of Finance, American Finance Association, American Finance Association, vol. 54(3), pages 1169-1184, 06.
  23. FranÁois Derrien & Kent L. Womack, 2003. "Auctions vs. Bookbuilding and the Control of Underpricing in Hot IPO Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 16(1), pages 31-61.
  24. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 675-89, November.
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