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Uniform price auctions with profit maximizing seller

Author

Listed:
  • Peter Molnár

    (Norwegian University of Science and Technology)

Abstract

We study multiunit uniform price auctions where the seller is allowed to decrease the quantity supplied in order to maximize his profit. We show that he never chooses to do so in equilibrium. However, the existence of this option eliminates such equilibria where objects for sale are sold for too low a price. Our model explains the size of underpricing in Treasury auctions and provides guidance for the design of uniform price auctions.

Suggested Citation

  • Peter Molnár, 2013. "Uniform price auctions with profit maximizing seller," Economics Bulletin, AccessEcon, vol. 33(3), pages 1840-1846.
    • Handle: RePEc:ebl:ecbull:eb-12-00604
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I3-P172.pdf
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    References listed on IDEAS

    as
    1. 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, August.
    2. Ilan Kremer, 2004. "Underpricing and Market Power in Uniform Price Auctions," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 849-877.
    3. McAdams, David, 2007. "Adjustable supply in uniform price auctions: Non-commitment as a strategic tool," Economics Letters, Elsevier, vol. 95(1), pages 48-53, April.
    4. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, vol. 73(1), pages 29-34, October.
    5. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-764.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Uniform auction; underpricing; profi t maximizing seller;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets

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