Strategic Bidding in Multi-Unit Auctions with Capacity Constrained Bidders: The New York Capacity Market

Sebastian Schwenen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This article employs a simple model to describe bidding behavior in multi-unit uniform price procurement auctions when firms are capacity constrained. Using data from the New York City procurement auctions for power generating capacity, I find that firms use simple bidding strategies to coordinate on an equilibrium that extracts high rents for all bidders. I show theoretically and empirically that the largest bidder submits the auction clearing bid. All other bidders submit inframarginal bids that are low enough to not be profitably undercut. Inframarginal bidders decrease their bids as the pivotal firm's capacities and its profits of undercutting increase.
Original languageEnglish
JournalRAND Journal of Economics
Volume46
Issue number4
Pages (from-to)730-750
Number of pages21
ISSN0741-6261
DOIs
Publication statusPublished - 2015

Cite this

@article{eff4284b340c452ba72e5bc3e04ac717,
title = "Strategic Bidding in Multi-Unit Auctions with Capacity Constrained Bidders: The New York Capacity Market",
abstract = "This article employs a simple model to describe bidding behavior in multi-unit uniform price procurement auctions when firms are capacity constrained. Using data from the New York City procurement auctions for power generating capacity, I find that firms use simple bidding strategies to coordinate on an equilibrium that extracts high rents for all bidders. I show theoretically and empirically that the largest bidder submits the auction clearing bid. All other bidders submit inframarginal bids that are low enough to not be profitably undercut. Inframarginal bidders decrease their bids as the pivotal firm's capacities and its profits of undercutting increase.",
author = "Sebastian Schwenen",
year = "2015",
doi = "10.1111/1756-2171.12104",
language = "English",
volume = "46",
pages = "730--750",
journal = "RAND Journal of Economics",
issn = "0741-6261",
publisher = "Wiley-Blackwell",
number = "4",

}

Strategic Bidding in Multi-Unit Auctions with Capacity Constrained Bidders : The New York Capacity Market. / Schwenen, Sebastian.

In: RAND Journal of Economics, Vol. 46, No. 4, 2015, p. 730-750.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Strategic Bidding in Multi-Unit Auctions with Capacity Constrained Bidders

T2 - The New York Capacity Market

AU - Schwenen, Sebastian

PY - 2015

Y1 - 2015

N2 - This article employs a simple model to describe bidding behavior in multi-unit uniform price procurement auctions when firms are capacity constrained. Using data from the New York City procurement auctions for power generating capacity, I find that firms use simple bidding strategies to coordinate on an equilibrium that extracts high rents for all bidders. I show theoretically and empirically that the largest bidder submits the auction clearing bid. All other bidders submit inframarginal bids that are low enough to not be profitably undercut. Inframarginal bidders decrease their bids as the pivotal firm's capacities and its profits of undercutting increase.

AB - This article employs a simple model to describe bidding behavior in multi-unit uniform price procurement auctions when firms are capacity constrained. Using data from the New York City procurement auctions for power generating capacity, I find that firms use simple bidding strategies to coordinate on an equilibrium that extracts high rents for all bidders. I show theoretically and empirically that the largest bidder submits the auction clearing bid. All other bidders submit inframarginal bids that are low enough to not be profitably undercut. Inframarginal bidders decrease their bids as the pivotal firm's capacities and its profits of undercutting increase.

UR - http://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921398113&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1111/1756-2171.12104

DO - 10.1111/1756-2171.12104

M3 - Journal article

VL - 46

SP - 730

EP - 750

JO - RAND Journal of Economics

JF - RAND Journal of Economics

SN - 0741-6261

IS - 4

ER -