Divisible-good auctions: The role of allocation rules

Ilan Kremer*, Kjell G. Nyborg

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

76 Scopus citations


We examine the role of allocation rules in determining the set of equilibrium prices in uniform-price auctions. Beginning with Wilson (1979), the theoretical literature has argued that these auctions are subject to possible low equilibrium prices. We show that this is due to the way the asset is being divided. We focus on allocation rules that specify the way the asset is divided in cases of excess demand. This may have a dramatic effect on the set of equilibrium prices. In particular, we show that a simple allocation rule (pro rata) eliminates underpricing, while the allocation rule used in practice has a negative effect on equilibrium prices.

Original languageAmerican English
Pages (from-to)147-159
Number of pages13
JournalRAND Journal of Economics
Issue number1
StatePublished - 2004
Externally publishedYes


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