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Auctions with Endogenous Supply and the Walrasian Outcome

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  • Damian S. Damianov

    () (Keele University, Centre for Economic Research and School of Economic and Management Studies)

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.

Suggested Citation

  • Damian S. Damianov, 2006. "Auctions with Endogenous Supply and the Walrasian Outcome," Keele Economics Research Papers KERP 2006/12, Centre for Economic Research, Keele University.
  • Handle: RePEc:kee:kerpuk:2006/12
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0612.pdf
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    Keywords

    Monopoly; Endogenous supply auctions; Competitive equilibrium; Subgame perfect equilibrium; Strategic market games.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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