Underpricing and Market Power in Uniform Price Auctions

38 Pages Posted: 2 Jun 2004

See all articles by Ilan Kremer

Ilan Kremer


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: April 2004


In uniform auctions, buyers choose demand schedules as strategies and pay the same 'market clearing' price for units awarded. Despite the widespread use of these auctions, the extant theory shows that they are susceptible to arbitrarily large underpricing. We make a realistic modification to the theory by allowing discrete prices, quantities and bids. We show that underpricing can be made arbitrarily small by choosing a sufficiently small price tick size and a sufficiently large quantity multiple. We also show how one might improve revenues by modifying the allocation rule. A trivial change in the design can have a dramatic impact on prices. Our conclusions are robust to bidders being capacity constrained. Finally, we examine supply uncertainty robust equilibria.

Keywords: Discreteness, market power, multi-unit auctions, supply uncertainty, treasury auctions, uniform price auctions, underpricing

JEL Classification: D44, G10

Suggested Citation

Kremer, Ilan and Nyborg, Kjell G., Underpricing and Market Power in Uniform Price Auctions (April 2004). CEPR Discussion Paper No. 4363. Available at SSRN: https://ssrn.com/abstract=552702

Ilan Kremer


No Address Available

Kjell G. Nyborg (Contact Author)

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

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

Centre for Economic Policy Research (CEPR)

United Kingdom

Swiss Finance Institute

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

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