Citation

Discussion Paper Details

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Title: Market Power and Welfare in Asymmetric Divisible Good Auctions

Author(s): Carolina Manzano and Xavier Vives

Publication Date: December 2016

Keyword(s): demand/supply schedule competition, electricity auctions, liquidity auctions, market integration, private information and Treasury auctions

Programme Area(s): Financial Economics and Industrial Organization

Abstract: We analyze a divisible good uniform-price auction that features two groups, each with a finite number of identical bidders, who compete in demand schedules. In the linear-quadratic-normal framework, this paper presents conditions under which the unique equilibrium in linear demands exists and derives novel comparative statics results that highlight the interaction between payoff and information parameters with asymmetric groups. We find that the strategic complementarity in the slopes of traders' demands is reinforced by inference effects from prices, and display the role of payoff and information asymmetries in explaining deadweight losses. Furthermore, price impact and the deadweight loss need not move together and market integration may reduce welfare. The results are consistent with the available empirical evidence.

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Bibliographic Reference

Manzano, C and Vives, X. 2016. 'Market Power and Welfare in Asymmetric Divisible Good Auctions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11731