Price instability in multi-unit auctions

Edward Anderson and Pär Holmberg

Journal of Economic Theory, 2018, vol. 175, issue C, 318-341

Abstract: We consider a uniform-price procurement auction with indivisible units and private independent costs. We find an explicit solution for a Bayesian Nash equilibrium, which is unique if demand shocks are sufficiently evenly distributed. The equilibrium has a price instability in the sense that a minor change in a supplier's realized cost can result in a drastic change in the market price. We quantify the resulting volatility and show that it is reduced as the size of indivisible units decreases. In the limit, the equilibrium converges to the Supply Function Equilibrium (SFE) for divisible goods if costs are common knowledge.

Keywords: Multi-unit auctions; Indivisible unit; Price instability; Supply function equilibria; Convergence of Nash equilibria; Wholesale electricity markets (search for similar items in EconPapers)
JEL-codes: C62 C72 D43 D44 L94 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Price Instability in Multi-Unit Auctions (2015)
Working Paper: Price Instability in Multi-Unit Auctions (2015)
Working Paper: Price Instability in Multi-Unit Auctions (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:175:y:2018:i:c:p:318-341

DOI: 10.1016/j.jet.2018.01.008

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