Market Power and Welfare in Asymmetric Divisible Good Auctions

Carolina Manzano () and Xavier Vives

No 6261, CESifo Working Paper Series from CESifo

Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders and present conditions under which a unique privately revealing equilibrium exists. We derive novel comparative static results highlighting that increases in transaction costs and noise in the signals of a group reinforce each other in making demand schedules of both groups steeper. If the correlation of values of the groups raises, as in a crisis situation, then the illiquidity e¤ect is further reinforced. A “stronger” bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power (price impact) and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Price impact and the deadweight loss may be negatively associated and market integration may reduce welfare. The results are consistent with the available empirical evidence.

Keywords: demand; supply schedule competition; private information; liquidity auctions; treasury auctions; electricity auctions; market integration (search for similar items in EconPapers)
JEL-codes: D44 D82 E58 G14 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-des, nep-gth, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp6261_1.pdf (application/pdf)

Related works:
Journal Article: Market power and welfare in asymmetric divisible good auctions (2021)
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2017)
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2017)
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6261

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().