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

See all articles by Ilan Kremer

Ilan Kremer

Independent

Kjell G. Nyborg

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 2002

Abstract

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

Kremer, Ilan and Nyborg, Kjell G., Underpricing and Market Power in Uniform Price Auctions (December 2002). London Business School, Institute of Finance and Accounting Working Paper No. IFA 260. Available at SSRN: https://ssrn.com/abstract=305373 or http://dx.doi.org/10.2139/ssrn.305373

Ilan Kremer

Independent

No Address Available

Kjell G. Nyborg (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Z├╝rich, 8032
Switzerland
+41 (0)44 634 2980 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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