Underpricing and Market Power in Uniform Price Auctions
London Business School, Institute of Finance and Accounting Working Paper No. IFA 260
35 Pages Posted: 25 May 2002
Date Written: December 2002
In uniform auctions, buyers choose demand schedules as strategies and pay the same "market clearing" price for units awarded. The extant theory shows that these auctions are susceptible to arbitrarily large underpricing as a result of bidders having market power. This paper studies modifications to the theory of common value uniform price auctions which make it more realistic and are of empirical or normative interest. Underpricing is shown to be less severe than previously suggested and some empirical implications are developed.
Keywords: Multiunit auctions, treasury auctions, uniform price auctions, underpricing, discreteness, rationing, supply uncertainty, market power
JEL Classification: D44, G10
Suggested Citation: Suggested Citation