A Small Volume Reduction that Melts Down the Market: Auctions with Endogenous Rationing

38 Pages Posted: 9 Apr 2020

See all articles by Karl-Martin Ehrhart

Karl-Martin Ehrhart

University of Karlsruhe

Ann-Katrin Hanke

affiliation not provided to SSRN

Marion Ott

ZEW – Leibniz Centre for European Economic Research

Date Written: 2020

Abstract

Auctions with endogenous rationing have been introduced to stimulate competition. Such (procurement) auctions reduce the volume put out to tender when competition is low. This paper finds a strong negative effect of endogenous rationing on participation when bid-preparation is costly, counteracting the aim to stimulate competition. For multiple auctioneer's objectives mentioned in directives, we derive optimal mechanisms, which differ due to different evaluation of the tradeoff between participation and bid-preparation costs. Thus, the auctioneer needs to decide on an objective. However, reducing bid-preparation costs improves the optimal values of multiple objective functions.

Keywords: auction, participation, market design, optimal mechanism, renewable energy support

JEL Classification: D82, Q48, D47, D44

Suggested Citation

Ehrhart, Karl-Martin and Hanke, Ann-Katrin and Ott, Marion, A Small Volume Reduction that Melts Down the Market: Auctions with Endogenous Rationing (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-014, Available at SSRN: https://ssrn.com/abstract=3570389 or http://dx.doi.org/10.2139/ssrn.3570389

Karl-Martin Ehrhart (Contact Author)

University of Karlsruhe ( email )

Postbox
76128 Karlsruhe, DE 76128
Germany

Ann-Katrin Hanke

affiliation not provided to SSRN

Marion Ott

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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