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Flow auctions

Author

Listed:
  • Ilan Kremer

    (Stanford University)

  • Zvi Wiener

    (The Hebrew University)

  • Eyal Winter

    (The Hebrew University)

Abstract

Flow goods (like electricity) are sold through auctions in a dynamic framework. An important design question is the frequency of such auctions. We use a simple dynamic auction model in continuous time to answer this question. We focus on the relationship between the persistency of bidders’ valuations and the optimal choice of frequency. If the seller focuses on the equilibrium in which bidders follow a repeated static Nash strategy, then the frequency of auctions should typically increase when persistency declines. However, accounting for the fact that bidders can follow different equilibria that are collusive in nature, the comparative statics are reversed, forcing the seller to reduce the frequency when bidders’ valuations are less persistent. The argument builds on the fact that high frequency auctions are more conducive to collusion among bidders.

Suggested Citation

  • Ilan Kremer & Zvi Wiener & Eyal Winter, 2017. "Flow auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(3), pages 655-665, August.
    • Handle: RePEc:spr:jogath:v:46:y:2017:i:3:d:10.1007_s00182-016-0549-3
    DOI: 10.1007/s00182-016-0549-3
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    References listed on IDEAS

    as
    1. Cramton, Peter & Stoft, Steven, 2007. "Why We Need to Stick with Uniform-Price Auctions in Electricity Markets," The Electricity Journal, Elsevier, vol. 20(1), pages 26-37.
    2. Susan Athey & Kyle Bagwell, 2008. "Collusion With Persistent Cost Shocks," Econometrica, Econometric Society, vol. 76(3), pages 493-540, May.
    3. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-599, June.
      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Auctions; Dynamics; Contracting; Nash equilibrium; Collusion;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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