The Multiple Unit Auction with Variable Supply

Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, No. (98-28)

17 Pages Posted: 2 Dec 1998

See all articles by Yvan Lengwiler

Yvan Lengwiler

University of Basel - Faculty of Business and Economics (WWZ)

Date Written: June 2, 1998

Abstract

The theory of multiple unit auctions traditionally assumes that the offered quantity is fixed. I argue that this assumption is not appropriate for many applications because the seller may be able and willing to adjust the supply to the bidding. In this paper I address this shortcoming by analyzing a multi-unit auction game between a monopolistic seller who can produce arbitrary quantities at constant unit cost, and oligopolistic bidders. I establish the existence of a subgame-perfect equilibrium for price discriminating and for uniform price auctions. I also show that bidders have an incentive to misreport their true demand in both auction formats, but they do that in different ways and for different reasons. Furthermore, both auction formats are inefficient, but there is no unambiguous ordering among them. Finally, the more competitive the bidders are, the more likely the seller is to prefer uniform pricing over price discrimination, yet increased competition among bidders may or may not enhance efficiency.

JEL Classification: D44

Suggested Citation

Lengwiler, Yvan, The Multiple Unit Auction with Variable Supply (June 2, 1998). Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, No. (98-28). Available at SSRN: https://ssrn.com/abstract=138470 or http://dx.doi.org/10.2139/ssrn.138470

Yvan Lengwiler (Contact Author)

University of Basel - Faculty of Business and Economics (WWZ) ( email )

Peter Merian-Weg 6
PO Box
Basel, CH-4002
Switzerland
+41 61 267 3369 (Phone)

HOME PAGE: http://wwz.unibas.ch/lengwiler

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