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RAND Journal of Economics

Comparing Auction Designs Where Suppliers Have Uncertain Costs and Uncertain Pivotal Status

Scientific Article in English
Reference
Holmberg, Pär and Frank A. Wolak (2018). “Comparing Auction Designs Where Suppliers Have Uncertain Costs and Uncertain Pivotal Status”. RAND Journal of Economics 49(4), 995–1027. doi.org/10.1111/1756-2171.12259

Authors
Pär Holmberg, Frank A. Wolak

We analyze how market design influences bidding in multiunit procurement auctions where suppliers have asymmetric information about production costs. Our analysis is particularly relevant to wholesale electricity markets, because it accounts for the risk that a supplier is pivotal; market demand is larger than the total production capacity of its competitors. With constant marginal costs, expected welfare improves if the auctioneer restricts offers to be flat. We identify circumstances where the competitiveness of market outcomes improves with increased market transparency. We also find that, for buyers, uniform pricing is preferable to discriminatory pricing when producers' private signals are affiliated.

Pär Holmberg

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