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A small volume reduction that melts down the market: Auctions with endogenous rationing

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  • Ehrhart, Karl-Martin
  • Hanke, Ann-Katrin
  • Ott, Marion

Abstract

Auctions with endogenous rationing have been introduced to stimulate competition. Such (procurement) auctions reduce the volume put out to tender when competition is low. This paper finds a strong negative effect of endogenous rationing on participation when bid-preparation is costly, counteracting the aim to stimulate competition. For multiple auctioneer's objectives mentioned in directives, we derive optimal mechanisms, which differ due to different evaluation of the tradeoff between participation and bid-preparation costs. Thus, the auctioneer needs to decide on an objective. However, reducing bid-preparation costs improves the optimal values of multiple objective functions.

Suggested Citation

  • Ehrhart, Karl-Martin & Hanke, Ann-Katrin & Ott, Marion, 2020. "A small volume reduction that melts down the market: Auctions with endogenous rationing," ZEW Discussion Papers 20-014, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:20014
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    References listed on IDEAS

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    6. Celik Gorkem & Yilankaya Okan, 2009. "Optimal Auctions with Simultaneous and Costly Participation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-33, July.
    7. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
    8. Peter Cramton & Sean Ellermeyer & Brett Katzman, 2015. "Designed To Fail: The Medicare Auction For Durable Medical Equipment," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 469-485, January.
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    10. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April.
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    Cited by:

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    More about this item

    Keywords

    auction; participation; market design; optimal mechanism; renewable energy support;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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