Market Power and Welfare in Asymmetric Divisible Good Auctions

50 Pages Posted: 3 Jan 2017 Last revised: 2 Mar 2020

See all articles by Carolina Manzano

Carolina Manzano

Universitat Rovira Virgili

Xavier Vives

University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Date Written: December 2016

Abstract

We analyze a divisible good uniform-price auction that features two groups, each with a finite number of identical bidders, who compete in demand schedules. In the linear-quadratic-normal framework, this paper presents conditions under which the unique equilibrium in linear demands exists and derives novel comparative statics results that highlight the interaction between payoff and information parameters with asymmetric groups. We find that the strategic complementarity in the slopes of traders' demands is reinforced by inference effects from prices, and display the role of payoff and information asymmetries in explaining deadweight losses. Furthermore, price impact and the deadweight loss need not move together and market integration may reduce welfare. The results are consistent with the available empirical evidence.

JEL Classification: D44, D82, E58, G14

Suggested Citation

Manzano, Carolina and Vives, Xavier, Market Power and Welfare in Asymmetric Divisible Good Auctions (December 2016). CEPR Discussion Paper No. DP11731, Available at SSRN: https://ssrn.com/abstract=2893084

Carolina Manzano (Contact Author)

Universitat Rovira Virgili ( email )

Tarragona
Spain

Xavier Vives

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Universitat Pompeu Fabra (UPF) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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