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Journal of Economic Theory

Price Instability in Multi–Unit Auctions

Journal Article
Anderson, Edward and Pär Holmberg (2018). “Price Instability in Multi–Unit Auctions”. Journal of Economic Theory 175, 318–341.

Edward Anderson, Pär Holmberg

We consider a uniform-price procurement auction with indivisible units and private independent costs. We …nd an explicit solution for a Bayesian Nash equilibrium, which is unique if demand shocks are su¢ ciently evenly distributed. The equilibrium has a price instability in the sense that a minor change in a supplier’s realized cost can result in a drastic change in the market price. We quantify the resulting volatility and show that it is reduced as the size of indivisible units decreases. In the limit, the equilibrium converges to the Supply Function Equilibrium (SFE) for divisible goods if costs are common knowledge.

Pär Holmberg

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