Working Paper: CEPR ID: DP4363
Authors: Ilan Kremer; Kjell G. Nyborg
Abstract: In uniform auctions, buyers choose demand schedules as strategies and pay the same ?market clearing? price for units awarded. Despite the widespread use of these auctions, the extant theory shows that they are susceptible to arbitrarily large underpricing. We make a realistic modification to the theory by allowing discrete prices, quantities and bids. We show that underpricing can be made arbitrarily small by choosing a sufficiently small price tick size and a sufficiently large quantity multiple. We also show how one might improve revenues by modifying the allocation rule. A trivial change in the design can have a dramatic impact on prices. Our conclusions are robust to bidders being capacity constrained. Finally, we examine supply uncertainty robust equilibria.
Keywords: discreteness; market power; multiunit auctions; supply uncertainty; treasury auctions; uniform price auctions; underpricing
JEL Codes: D44; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction design features (D44) | underpricing (D49) |
| price tick size (D41) | underpricing (D49) |
| quantity multiple (C39) | underpricing (D49) |
| allocation rule (D45) | underpricing (D49) |
| marginal residual supply increases competition among bidders (D44) | stopout prices (P22) |
| allocation strategy (C78) | bidding behavior (D44) |
| allocation strategy (C78) | market outcomes (P42) |