Tilting the supply schedule to enhance competition in uniform-price auctions

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 endoge...

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Bibliographic Details
Published in:European economic review 2005, Vol.49 (1), p.227-250
Main Authors: LiCalzi, Marco, Pavan, Alessandro
Format: Article
Language:English
Subjects:
Auctions
Competition
Divisible good
Economic models
Economic theory
Endogenous supply
Initial public offering
Prices
Sales
Strategic role of the seller
Studies
Supplies
Supply
Treasury and IPO auctions
Uniform-price auction
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Summary: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.
ISSN:0014-2921
1873-572X
DOI:10.1016/S0014-2921(02)00324-0