Open AccessMarket power and welfare in asymmetric divisible good auctions
Author(s) -
Manzano Carolina,
Vives Xavier
Publication year - 2021
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te3675
Subject(s) - comparative statics , economics , complementarity (molecular biology) , deadweight loss , market power , microeconomics , common value auction , stochastic game , bidding , information asymmetry , welfare , mathematical economics , econometrics , market economy , monopoly , genetics , biology
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 we 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.