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Market Power and Welfare in Asymmetric Divisible Good Auctions

Carolina Manzano and Xavier Vives ()
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Carolina Manzano: Rovira i Virgili University, Postal: Carrer de l`Escorxador, s/n, 43003 Tarragona, Spain, http://www.urv.cat/en/

No D/1162, IESE Research Papers from IESE Business School

Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we .nd that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power 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. Market power and the deadweight loss may be negatively associated.

Keywords: demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions (search for similar items in EconPapers)
JEL-codes: D44 D82 E58 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-des, nep-gth, nep-mac, nep-mic and nep-reg
Date: 2017-01-16
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Related works:
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2017) Downloads
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2016) Downloads
Working Paper: Market Power and Welfare in Asymmetric Divisible Good Auctions (2016) Downloads
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