Underpricing and Market Power in Uniform Price Auctions

Nyborg, K G and Kremer, I (2002) Underpricing and Market Power in Uniform Price Auctions. Working Paper. London Business School IFA Working Paper.

Abstract

In uniform auctions, buyers choose demand schedules as strategies and pay the same "market clearing" price for units awarded. The extant theory shows that these auctions are susceptible to arbitrarily large underpricing as a result of bidders having market power. This paper studies modifications to the theory of common value uniform price auctions which make it more realistic and are of empirical or normative interest. Underpricing is shown to be less severe than previously suggested and some empirical implications are developed.