European Business Schools Librarian's Group
IESE Research Papers,
IESE Business School
No D/1162: Market Power and Welfare in Asymmetric Divisible Good Auctions
Carolina Manzano and Xavier Vives ()
Additional contact information
Carolina Manzano: Rovira i Virgili University, Postal: Carrer de l`Escorxador, s/n, 43003 Tarragona, Spain
Xavier Vives: IESE Business School, Postal: IESE Business School. Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we .nd that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.
Keywords: demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions
48 pages, January 16, 2017
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WP-1162-E.pdf
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