Essays on Uniform Price Auctions
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When selling divisible goods such as energy contracts or emission allowances, should the entire supply be auctioned all at once or should it be spread over a sequence of auctions? How does the expected revenue in a sequence of uniform price auctions compare to the expected revenue in a single uniform price auction? These are questions that come up when designing high-stake auctions and this dissertation provides answers to them. In uniform price auctions, large bidders have an incentive to reduce demand in order to pay less for their winnings. In a sequence of uniform price auctions, bidders also internalize the effect of their bidding in early auctions on the overall demand reduction in later auctions and discount their bids by the option value of increasing their winnings in later auctions. This dissertation shows that a sequence of two uniform price auctions yields lower expected revenue than a single uniform price auction particularly when competition is not very strong.
It is generally argued that forward trading is socially beneficial. Two of the most common arguments state that forward trading allows efficient risk sharing and improves information sharing. It is also believed that when firms can produce any level of output, strategic forward trading can enhance competition in the spot market by committing firms to more aggressive strategies. However, firms usually face capacity constraints, which change the incentives for strategic trading ahead of the spot market. This dissertation also studies these incentives through a model where capacity constrained firms engage in forward trading before they participate in the spot market, which is organized as a multi-unit uniform-price auction with uncertain demand. This dissertation shows that when a capacity constrained firm commits itself through forward trading to a more competitive strategy in the spot market, it actually softens competition in the spot market. Hence, its competitor prefers not to follow suit in the forward market and thus behave less competitively in the spot market than otherwise. Moreover, strategic forward trading generally leaves consumers worse off as a consequence of less intense competition in the spot market.