Uniform price auctions with profit maximizing seller

Abstract

We study multiunit uniform price auctions where the seller is allowed to decrease the quantity supplied in order to maximize his profit. We show that he never chooses to do so in equilibrium. However, the existence of this option eliminates such equilibria where objects for sale are sold for too low a price. Our model explains the size of underpricing in Treasury auctions and provides guidance for the design of uniform price auctions.