Uniform Price Auction Research Articles

On the failure of monotonicity in uniform-price auctions

Except for well-studied special cases in which bidders have single-unit demand or bidders are risk-neutral with independent private values, equilibria of uniform-price auctions with private values need not possess familiar monotonicity properties. In particular, equilibria in weakly undominated strategies may exist in which some bidders bid strictly less on some units when they have strictly higher values for every unit.

RULE CHANGES AND UNCERTAINTY IN DISCRIMINATORY AND UNIFORM PRICE AUCTIONS

AbstractThe auction literature indicates that uncertainty about the value of auctioned goods increases underpricing in discriminatory price auctions. Such uncertainty has a smaller effect on uniform price auctions because the pricing rule aggregates bidders' information. We find that uncertainty resulting from inexperience with an auction mechanism has similar effects. Using initial public offering (IPO) data from Japan and Israel, we find that average underpricing increases temporarily in Japan's discriminatory price auctions after changes in the auction rules, which suggests that bidders reduce their bids in response to uncertainty. Underpricing in Israel's uniform price auctions is not affected by rule changes.

Why We Need to Stick with Uniform-Price Auctions in Electricity Markets

Arguments that the uniform-price auction yields electricity prices that are systematically too high are incorrect. Tampering with the spot price would cause inefficiency and raise long-term costs. The proper way to dampen the impact of spot price fluctuations is with long-term hedging.

Adjustable supply in uniform price auctions: Non-commitment as a strategic tool

In some uniform-price auctions, the auctioneer decides how much to sell after the bidding. Auctioneer expected profit and social welfare can each be strictly higher in all equilibria given such “adjustable supply” than in all equilibria given any fixed quantity and reserve price.

The Relevance of a Choice of Auction Format in a Competitive Environment

We examine the relevance of an auction format in a competitive environment by comparing uniform and discriminatory price auctions with many bidders in a private values setting. We show that if the number of objects for sale is small relative to the number of bidders, then all equilibria of both auctions are approximately efficient and lead to approximately the same revenue. When the number of objects for sale is proportional to the number of bidders, then the particulars of the auction format matter. All equilibria of the uniform auction are efficient, while all of the equilibria of the discriminatory auction are inefficient. The relative revenue rankings of the auction formats can go in either direction, depending on the specifics of the environment. These conclusions regarding the efficiency and revenue ranking are in contrast to the previous literature, which focused on the case of independent information across agents.

An experimental examination of demand reduction in multi‐unit versions of the Uniform‐price, Vickrey, and English auctions

AbstractDemand reduction in Uniform‐price and English auctions are strategic reactions by participants to reduce price and thus increase potential profits. Laboratory experiments similar to the field experiments performed by List and Reiley (Am. Econ. Rev. 2000; 9(4): 961–972) in which two individuals with demands for two units vie for two units through a Uniform‐price, English or Vickrey auction are conducted. We find strong support for demand reduction in both the English and Uniform‐price auctions, with significantly more dramatic reductions in the English auction. However, there is significant overbidding in both the Vickrey and Uniform‐price auction. This overbidding solves a puzzle found by List and Reiley in their field experiment data. Copyright © 2006 John Wiley & Sons, Ltd.

Selling shares to retail investors: auction vs. fixed price

We analyze the problem of selling shares of a divisible good to a large number of buyers when demand is uncertain. We characterize equilibria of two popular mechanisms, a fixed price mechanism and a uniform price auction, and compare the revenues. While in the auction truthful bidding is a dominant strategy, we find that bidders have an incentive to overstate their demand in the fixed price mechanism. For some parameter values we find that the fixed price mechanism outperforms the auction.

Selling Shares to Retail Investors: Auction vs. Fixed Price

We analyze the problem of selling shares of a divisible good to a large number of buyers when demand is uncertain. We characterize equilibria of two popular mechanisms, a fixed price mechanism and a uniform price auction, and compare the revenues. While in the auction truthful bidding is a dominant strategy, we find that bidders have an incentive to overstate their demand in the fixed price mechanism. For some parameter values this yields the surprising result that the fixed price mechanism outperforms the auction.

Uniform-Price Auctions with Adjustable Supply

In the uniform-price auction with adjustable supply, the seller decides how much to sell after receiving the bids so as to maximize its ex post profit. Given N bidders and adjustable supply, all equilibria of the uniform-price auction lead to price on order 1 N 3 below the Walrasian price. By contrast, given the usual market-clearing rule it is well-known that the uniform-price auction can lead to equilibrium prices on order 1 N below the Walrasian price.

Dynamic Price Discovering Models for Differentiated Wireless Services

Heterogeneous subscriber base with wide range of wireless services makes the wireless service market more challenging for a service provider (SP). This challenge is related to the revenue model of the SP, where pricing policy plays a central role. The pricing policy should be such that an SP will recover the investment while keeping the desired level of customer satisfaction. An ideal pricing policy should be less complex and be able to price the service close to the worth, a subscriber attached to it. This calls for dynamic price discovering models for differentiated wireless service. In this paper, we have proposed auction based price discovering models like uniform pricing auction and discriminatory pricing auction for dynamic pricing of differentiated wireless services. We have compared their performances with flat-pricing scheme for differentiated wireless services, which is quite popular in the wireless domain. Simulation results show that auction based models have a potential to replace the traditional flat pricing models.

The effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets

Newly established tradable fishing allowance markets are often accompanied by a period of high price volatility. These fluctuations complicate capital investment decisions and play a significant role in determining outcomes for the traders involved. This paper reports an evaluation of two market design features that may reduce volatility during price discovery: a uniform price auction, in which all trades within a period take place at the same price, and an initial lease period, which prohibits permanent allowance transfers at the beginning of the program. We find that initial lease periods effectively reduce volatility once permanent trading is introduced.

When Less (Potential Demand) Is More (Revenue): Asymmetric Bidding Capacities in Divisible Good Auctions

We show that asymmetry in bidders' capacity constraints plays an important role in inhibiting collusion and promoting competitive outcomes in multi-unit auctions in which the final value of the good is common knowledge. This effect appears to be related to the increased difficulty of coordination when there are significant differences between bidders. Due to its impact on collusive outcomes, asymmetry in bidding capacities has a more powerful impact on the seller's revenue than does the auction type. Consistent with the finding in Sade et al. (2006) that the discriminatory auction is more susceptible to collusion than the uniform-price auction, asymmetry in capacity constraints has a greater impact in discriminatory auctions.

Some inequalities related to the analysis of electricity auctions

Most balancing markets of electric power are organized as uniform-price auctions. In 2001, the balancing market of England and Wales switched to a pay-as-bid auction with the intention of reducing wholesale electricity prices. Numerical simulations of an electricity auction model have indicated that this should lead to decreased average prices. In this work we prove two inequalities which give an analytic proof of this claim in the same model.

Asymptotic prices in uniform-price multi-unit auctions

This paper considers a uniform-price auction in which each of n symmetric bidders can place, say, M bids. Each bidder has privately known, decreasing marginal values from an arbitrary M -dimensional distribution. We provide a quantile-type description of the asymptotic price that appropriately generalizes the characterization of the unit-demand asymptotic price. Specifically, the limiting price equals the $ (1-\alpha )$ -th quantile of the “average” of the marginal distributions if a fraction $\alpha $ of the demand is met asymptotically. The result also implies that the expected price in the limit as n becomes large depends only on the aggregate of the marginal distributions of each bidder’s marginal values (and not on the correlation between the marginal values).

Competition and Cooperation in Divisible Good Auctions: An Experimental Examination

An experimental approach is used to examine the performance of three different multiunit auction designs: discriminatory, uniform-price with fixed supply, and uniform-price with endogenous supply. We find the actual strategies to be inconsistent with theoretically identified equilibrium strategies. The discriminatory auction is found to be more susceptible to collusion than either uniform-price auction and so, contrary to theoretical predictions and previous experimental results, it generates the lowest average revenue. Consistent with theoretical predictions, the actual bid schedules are more elastic with reducible supply or discriminatory pricing than in the uniform-price auction with fixed supply.

Treasury bill auction procedures: Empirical perspectives from French market bid functions

We use empirical properties of market bid functions in Treasury bill auctions to analyze the Treasury auction mechanism. We propose an econometric method that exploits data from auction tables and we determine variables influencing the shape of market bid functions and their fluctuations across auctions. We apply the estimation procedure to discriminatory French Treasury bill auctions. We propose several applications of our empirical model. First, we provide a tool to forecast incoming auctions. Second, we measure, by simulations, the impact of different environments on auction rates. Third, we provide new empirical perspectives on the debate about the best procedure between the discriminatory and the uniform price auctions.

Bidding behaviour in the multi-unit Vickrey and uniform price auctions

Theory provides limited understanding of auctions in complex, multi-unit settings. This absence became apparent when performance concerns were raised over wholesale electric power auctions in England and California. This research used experiments involving 234 subjects to partially bridge the gap in knowledge with regard to bidding behaviour. Using a complex procurement setting motivated by power markets, bidding in the last accepted and first rejected uniform price auctions and the multi-unit Vickrey were examined across group sizes of 2, 4, and 6. To allow opportunity for tacit collusion, constant cost and demand conditions were maintained for 75 periods. Group size and experience were found to be most significant in explaining the differences between bids and costs. For groups of 2, this difference was significantly higher than with the other sizes, suggesting market power. Across sizes, after experience there was no significant difference in bidding behaviour between the uniform price auctions, with subjects in both bidding well above costs. Differences in the multi-unit Vickrey decreased after experience but, unexpectedly, bids were often below costs. Under no combinations did bids equal costs as would be desired by market designers. Results should give concern to policy analysts, and research suggestions to theorists.

Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions

ABSTRACTWe contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a data set of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently treating the auctions as a repeated game between itself and primary dealers. Bidder behavior and underpricing react to the volatility of bond returns in a way that suggests bidders adjust for the winner's curse.

Global trends in IPO methods: Book building versus auctions with endogenous entry

The U.S. book-building method has become increasingly popular for initial public offerings (IPOs) worldwide over the last decade, whereas sealed-bid IPO auctions have been abandoned in nearly all of the many countries in which they have been tried. I model book building, discriminatory auctions, and uniform price auctions in an environment in which the number of investors and the accuracy of investors’ information are endogenous. Book building lets underwriters manage investor access to shares, allowing them to reduce risk for both issuers and investors and to control spending on information acquisition, thereby limiting either underpricing or aftermarket volatility. Because more control and less risk are beneficial to all issuers, the advantages of book building's allocational flexibility could explain why global patterns of issuer choice are surprisingly consistent. My models also predict that offerings with higher expected underpricing have lower expected aftermarket volatility; that an auction open to large numbers of potential bidders is vulnerable to inaccurate pricing and to fluctuations in the number of bidders; and that both book-built and auctioned IPOs will exhibit partial adjustment to both private and public information.

The uniform price auction with endogenous supply

This paper shows that low-price equilibria in the uniform price auction with endogenous supply do not exist if the seller employs the proportional rationing rule and is consistent when selecting among profit-maximizing quantities. In a (consistent) subgame perfect equilibrium the Walrasian quantities are traded at the Walrasian price.