Bid Preferences Research Articles

QUANTUM AUCTIONS

We present a quantum auction protocol using superpositions to represent bids and distributed search to identify the winner(s). Measuring the final quantum state gives the auction outcome while simultaneously destroying the superposition. Thus, non-winning bids are never revealed. Participants can use entanglement to arrange for correlations among their bids, with the assurance that this entanglement is not observable by others. This protocol is useful for information hiding applications, such as partnership bidding with allocative externality or concerns about revealing bidding preferences. The protocol applies to a variety of auction types, e.g. first or second price, and to auctions involving either a single item or arbitrary bundles of items (i.e. combinatorial auctions). We analyze the game-theoretical behavior of the quantum protocol for the simple case of a sealed-bid quantum, and show how a suitably designed adiabatic search reduces the possibilities for bidders to game the auction. This design illustrates how incentive rather that computational constraints affect quantum algorithm choices.

Are bid preferences benign? The effect of small business subsidies in highway procurement auctions

Bid preferences in procurement auctions allow firms from an identifiable group an advantage in bidding against unfavored firms. While economic efficiency is expected to fall as a result of bid preferences, government procurement costs may either increase or decrease depending on the competitive response of favored and unfavored firms. This paper uses data from California auctions for road construction contracts, where small businesses receive a 5-percent bid preference in auctions for projects using only state funds and no preferential treatment on projects using federal aid. I show that while firms' bidding behavior matches theoretical predictions, procurement costs are 3.8 percent higher on auctions using preferences. The higher procurement cost in preference auctions is attributed to reduced participation by lower cost large firms. Structural estimates of latent firm costs are then used to evaluate how efficiency and the division of surplus between firms and the government are impacted by bid preferences. Firm profits are 3.1 percent lower under bid preferences, however this is overwhelmed by the efficiency loss due to reduced large firm participation. The efficiency loss conditional on firm participation is estimated to represent around 0.1 percent of overall procurement costs. Including the adverse effect of preferences on the participation of large firms increases the estimated efficiency loss to 3.6 percent, which represents 27 cents for each additional dollar awarded to small businesses through the program. Counterfactual simulations indicate that if participation were instead inelastic to bid preferences, the 5-percent bid preference would be close to the optimal level.

Bid preference in license auctions: Affirmative action can achieve economic efficiency

If allocative externalities are present among bidders such as when they interact subsequent to the auction, their valuations for the item may differ from their contributions to the social welfare. This paper shows that bid preference in auctions given to those bidders who can contribute more to the social welfare relative to their valuations is an effective measure to achieve efficiency, that is, social welfare maximization. This paper therefore provides a rationale in terms of efficiency for the practice of granting affirmative action bid preferences to minorities or other designated groups. This insight may be applicable to the broader issue of affirmative action programs in general as well.

Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions

From bidding data, we estimate the underlying value distribution for Forest Service timber. We find that bidder values decrease $2/mbf (thousand board feet) with each mile from the tract and that small firms (fewer than 500 employees) have values that are $72/mbf lower than large firms. The empirical value distribution is used to simulate various hypothetical scenarios designed to inform public policy. The most anticompetitive mergers raise price by less than 3%, and a 4% decline in marginal costs through greater merger efficiencies is enough to offset a 1% anticompetitive price increase. Eliminating the SBA set-aside program would raise timber revenues by 15%. A policy of granting bidding preferences to small and more-distant bidders would raise revenue by approximately one-tenth of one percent.