Abstract:
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We analyze a divisible good uniform-price auction that features two groups each with
a Önite number of identical bidders. At equilibrium the relative market power (price
impact) of a group increases with the precision of its private information and declines with
its transaction costs. An increase in transaction costs and/or a decrease in the precision
of a bidding groupís 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 price impact 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 payo§ asymmetries. Price impact and the deadweight loss may
be negatively associated. The results are consistent with the available empirical evidence.
KEYWORDS: demand/supply schedule competition, private information, liquidity
auctions, Treasury auctions, electricity auctions, market integration.
JEL: D44, D82, G14, E58 |