Market power and welfare in asymmetric divisible good auctions

Abstract

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.

Information, Market Power and Welfare

“…example, Vives (2011Vives ( , 2014, Weretka (2012, 2015), Yoon (2019), Bergemann et al (2021, Chen andDuffie (2021), Heumann (2021), Manzano and Vives (2021), and Glebkin and Kuong (2023). All our results, with the exception of Proposition 6.2, extend to a setting with negative exponential utility (constant absolute risk aversion), with only minor modifications.…”

“…In Glebkin and Kuong (2023) there are two groups, one of which consists of pricetaking agents. Manzano and Vives (2021) have two groups that differ in the precision of agents' private signals; the equilibrium is privately revealing as in Vives (2011). In Rostek and Yoon (2019) correlations between values can be arbitrary, as in our model, but all agents are assumed to have private information of the same precision.…”