Price Formation

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Price Formation

Price Formation

Anderson, Edward J. “Mixed Strategies in Discriminatory Divisible-good Auctions.” In, 2009.Abstract

Anderson, Edward J. , Pr Holmberg and Andrew B. Philpott. Mixed Strategies in Discriminatory Divisible-good Auctions. IFN Working Paper No. 814, 2009. 72 pages.

Using the concept of market-distribution functions, we derive general optimality conditions for discriminatory divisible-good auctions, which are also applicable to Bertrand games and non-linear pricing. We introduce the concept of offer distribution function to analyze randomized offer curves, and characterize mixed-strategy Nash equilibria for pay-as-bid auctions where demand is uncertain and costs are common knowledge; a setting for which pure-strategy supply function equilibria typically do not exist. We generalize previous results on mixtures over horizontal offers as in Bertrand-Edgeworth games, but more importantly we characterize novel mixtures over partly increasing supply functions.