Auctions with Liquidity Subsidies

25 Pages Posted: 7 Nov 2018

See all articles by Anthony Lee Zhang

Anthony Lee Zhang

University of Chicago - Booth School of Business

Date Written: November 4, 2018

Abstract

This paper proposes liquidity subsidies for improving allocative efficiency and price discovery in multi-unit auctions. In the proposed subsidy scheme, the market administrator divides some amount of subsidy revenue between agents proportional to their marginal contribution to the slope of auction aggregate demand at the equilibrium price. These subsidies cause agents to bid more aggressively, increasing the slopes of their submitted bid curves. This decreases bid shading, increases allocative efficiency, and lowers the variance of auction prices.

Keywords: Auctions

JEL Classification: D4

Suggested Citation

Zhang, Anthony Lee, Auctions with Liquidity Subsidies (November 4, 2018). Available at SSRN: https://ssrn.com/abstract=3278340 or http://dx.doi.org/10.2139/ssrn.3278340

Anthony Lee Zhang (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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