The next Economics Seminar of Paris-Saclay will take place on Thursday, November 24 from 12h15 to 13h15. Marion Ott (ZEW, Mannheim) will present A Small Volume Reduction that Melts Down the Market: Auctions with Endogenous Rationing.
Auctions with endogenous rationing have been introduced to ensure proportionality of public support for renewables. Such (reverse) auctions reduce the auctioned volume below the volume put out to tender (or reduce the reserve price) when competition is low. However, we show that with costly participation, endogenous rationing strongly reduces participation, and this effect is independent of how much the volume is reduced. In a lab experiment, endogenous rationing reduces participation, the allotted volume, welfare, and support payments but there is no evidence of an increase in auctioneer’s surplus. We thus explore other options to achieve different auctioneer’s objectives. Optimal auction designs to maximize surplus or welfare, or to achieve volume goals reimburse all or all losing bidders for their participation costs but there is the usual trade-off between the objectives in choosing the optimal reserve price. In contrast, reducing participation costs contributes to all three objectives and helps ensure proportionality.