Multi-unit auction format design

Abstract

Multi-unit auctions are powerful mechanisms for the allocation of numerous resources and production contracts. However, there is uncertainty about the best auction formats when multi-unit auctions are used because there are multiple equilibria and analytical descriptions of optimum strategies are intractable. Empirical studies are scarce and most experimental studies are restricted to two bidders and two units. This paper constructs an agent-based model of bidders to compare the performance of alternative procurement auction formats under circumstances where bidders submit continuous bid supply functions and learn over time to adjust their bids in order to improve their net incomes. The results provide some confirmation of analytical predictions but also indicate that the range of bidding strategies employed is richer than what the theory expects. Bidder coordination for higher prices is possible under both the Vickrey and uniform auctions, especially when the population is heterogeneous and competition low. Judged by budgetary measures, the discriminatory auction is the most expensive when rationing is tight, but this outcome is reversed when rationing is less stringent. Budgetary outcomes can be improved if the auction is organized among more homogeneous bidders.