Market Power and Information Effects in a Multi-Unit Auction

University of Zurich, Department of Economics, Working Paper No. 320 (2019)

54 Pages Posted: 16 Apr 2019

See all articles by Andreas Hefti

Andreas Hefti

University of Zurich - Department of Economics; Zurich University of Applied Sciences

Peiyao Shen

ShanghaiTech University - School of Entrepreneurship and Management

Regina Betz

Zurich University of Applied Sciences

Date Written: March 2019

Abstract

We study the effects of different information structures (full information, supply uncertainty and demand uncertainty) on equilibrium prices, allocative efficiency and bidding behavior in a (supply-side) uniform-price multi-unit auction, using supply function competition and a novel experimental design. Our setup integrates different types of market power and a varying level of competition. We empirically find that average prices tend to be higher under full information compared to the cases where bidders either have limited information about about the demand level or rivals’ technologies or; the latter even leading to strictly lower average prices as the exertion of market power and bid shading is strongly reduced. We explain this finding with a behavioral equilibrium concept, where bidders behave as if competing against the average market situation. Further, we address the problem of multiplicity of equilibria by exploiting the equilibrium conditions to obtain an empirical selection of the average equilibrium supply function. The respective predictions of the average prices exceed those by standard OLS in all information treatments.

Keywords: multi-unit auctions, limited information, market power, supply function competition, supply uncertainty, demand uncertainty, restricted least squares

JEL Classification: C92, D43, D44, D82, L11, L94, Q41

Suggested Citation

Hefti, Andreas M. and Shen, Peiyao and Betz, Regina, Market Power and Information Effects in a Multi-Unit Auction (March 2019). University of Zurich, Department of Economics, Working Paper No. 320 (2019), Available at SSRN: https://ssrn.com/abstract=3360508 or http://dx.doi.org/10.2139/ssrn.3360508

Andreas M. Hefti (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Zurich University of Applied Sciences ( email )

Institut fuer Angewandte Medienwissenschaft
Zur Kesselschmiede 35
Winterthur, CH 8401
Switzerland

Peiyao Shen

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Regina Betz

Zurich University of Applied Sciences ( email )

Centre for Energy and the Environment (CEE)
Bahnhofplatz 12
Winterthur, CH 8401
Switzerland

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