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Market Power and Welfare in Asymmetric Divisible Good Auctions

Author

Listed:
  • Vives, Xavier
  • Manzano, Carolina
Abstract
We analyze a divisible good uniform-price auction that features two groups, each with a finite number of identical bidders, who compete in demand schedules. In the linear-quadratic-normal framework, this paper presents conditions under which the unique equilibrium in linear demands exists and derives novel comparative statics results that highlight the interaction between payoff and information parameters with asymmetric groups. We find that the strategic complementarity in the slopes of traders' demands is reinforced by inference effects from prices, and display the role of payoff and information asymmetries in explaining deadweight losses. Furthermore, price impact and the deadweight loss need not move together and market integration may reduce welfare. The results are consistent with the available empirical evidence.

Suggested Citation

  • Vives, Xavier & Manzano, Carolina, 2016. "Market Power and Welfare in Asymmetric Divisible Good Auctions," CEPR Discussion Papers 11731, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11731
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    Cited by:

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    2. Lou, Youcheng & Rahi, Rohit, 2021. "Information, market power and welfare," LSE Research Online Documents on Economics 118843, London School of Economics and Political Science, LSE Library.
    3. Lou, Youcheng & Yang, Yaqing, 2023. "Information linkages in a financial market with imperfect competition," Journal of Economic Dynamics and Control, Elsevier, vol. 150(C).
    4. Youcheng Lou, 2023. "On the functional equivalence of two perfectly competitive economies with negative exponential utility and linear utility with a quadratic holding cost," Mathematics and Financial Economics, Springer, volume 17, number 4, March.
    5. Glebkin, Sergei & Kuong, John Chi-Fong, 2023. "When large traders create noise," Journal of Financial Economics, Elsevier, vol. 150(2).
    6. Lou, Youcheng & Rahi, Rohit, 2023. "Information, market power and welfare," Journal of Economic Theory, Elsevier, vol. 214(C).
    7. Lou, Youcheng & Rahi, Rohit, 2023. "Information, market power and welfare," LSE Research Online Documents on Economics 120479, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Demand/supply schedule competition; Private information; Liquidity auctions; Treasury auctions; Electricity auctions; market integration;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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