Market Power and Welfare in Asymmetric Divisible Good Auctions

48 Pages Posted: 17 May 2017

See all articles by Carolina Manzano

Carolina Manzano

Universitat Rovira Virgili

Xavier Vives

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

Multiple version iconThere are 3 versions of this paper

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. 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 find 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 dead-weight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the dead-weight loss may be negatively associated.

Keywords: demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions

JEL Classification: D44, D82, G14, E58

Suggested Citation

Manzano, Carolina and Vives, Xavier, Market Power and Welfare in Asymmetric Divisible Good Auctions (December 2016). IESE Business School Working Paper No. 1162-E, Available at SSRN: https://ssrn.com/abstract=2969741 or http://dx.doi.org/10.2139/ssrn.2969741

Carolina Manzano

Universitat Rovira Virgili ( email )

Tarragona
Spain

Xavier Vives (Contact Author)

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

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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