Auctions with Endogenous Supply and the Walrasian Outcome

Damian Damianov

No KERP 2006/12, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: In this paper we study a special class of mechanisms for price formation on mo-nopolistic markets: multiunit auctions with endogenous supply. We formally define these trade mechanisms as dynamic market games and characterize their subgame perfect equilibria. Conditions on the pricing rule are provided, which guarantee that the strategic equilibria of these market forms are competitive. The discriminatory auction is found to have Walrasian equilibria only, whereas the uniform price auction has additional non-Walrasian equilibria. The presented models provide a strategic foundation of the competitive equilibrium paradigm. We discuss some parallels of our results to Pigou's (1920) discussion on monopoly pricing.

Keywords: Monopoly; Endogenous supply auctions; Competitive equilibrium; Subgame perfect equilibrium; Strategic market games. (search for similar items in EconPapers)
JEL-codes: D41 D42 D44 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-06
New Economics Papers: this item is included in nep-com and nep-mic
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