Bidding In Auctions Research Articles

The impact of deal‐proneness on WTP estimates in incentive‐aligned value elicitation methods

AbstractEven after controlling for hypothetical biases, some incentive‐aligned value elicitation methods still produce different willingness‐to‐pay (WTP) estimates. In this study, we compare WTP estimates from three incentive‐aligned value elicitation methods: real choice experiment (RCE), real double‐bounded dichotomous contingent valuation (RCVM), and Becker–DeGroot–Marschak auction (BDM). We find that participants’ aggressiveness in obtaining low prices (i.e., “deal‐proneness”) influences WTP estimates in the BDM auction, but not those elicited from the RCE and RCVM. The participants with higher levels of deal‐proneness tend to submit lower bids in the BDM auction. The discrepancies in WTP estimates between different incentive‐aligned procedures are narrower for participants with lower levels of deal‐proneness. Our results indicate that the bids in BDM auctions may be understated and the auction mechanism may induce the “gambling behavior” of people who are deal‐prone. That is, whether the BDM auction is truly incentive‐aligned is again called into question. We also discuss the practical implications for food retailers.

Optimal bidding of market players in competitive electricity markets based on a novel hybrid PSO-IGWO method

Strategic bidding is an important issue in the restructured electric marketplace. In an hour ahead actual power market having sealed bid auc-tion policy involving incomplete information of symmetrical and unsymmetrical nature have been addressed separately in the present work. Various constraints either equality type or inequality type have been properly analysed to model a market very close to a real one. Social welfare, where all the players individually benefitted is the prime objective. Hence, the bidding coefficients are to be selected very carefully. At present, the digital advancement supports each participant to optimize its desired objective through the optimization methods available so far. But, the proposed Particle Swarm Optimization-Improved Grey Wolf Optimization (PSO-IGWO) is a very novel hybrid method. Its supremacy compared to the other methods has been clearly evidenced by implementing in the present work. The standard IEEE-30 bus sys-tem and a practical 75 Bus Indian system have been considered to validate the effectiveness of the novel technique suggested and the excel-lent outputs evidence this fact on comparison with the results, of a very recently published article, found adopting GA optimization tech-nique [28].

COMPARING PUBLIC PROCUREMENT AUCTIONS

AbstractThis article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs.

An Efficient Ascending-Bid Auction for Multiple Objects: Reply

In a comment, Okamoto (2018 ) identifies and corrects a misspecification of the rationing rule in Ausubel (2004 ). This reply elaborates on the observation that the optimality of truthful bidding in dynamic auctions may be sensitive to the fine details of the rationing rule. It then discusses the wider role of sequential bid processing in restoring truthful bidding. (JEL D44)

Sequential Auctions with Decreasing Reserve Prices

AbstractWe study sequential sealed bid auctions with decreasing reserve prices when there are two identical objects for sale and unit-demand bidders (existing literature has dealt with the case of weakly increasing reserve prices). Under decreasing reserve prices bidders may have an incentive not to bid in the first auction, and no equilibrium exists with a strictly increasing stage one bidding function. However, we find that an equilibrium always exists, and its shape depends on the distance between the two reserve prices. The equilibrium exhibits some pooling at the stage one auction, which disappears in the limit as the number of bidders tends to infinity. We also show revenue equivalence between first-price and second-price sequential auctions under decreasing reserve prices. Finally, our results allow us to shed some light on an optimal order problem (increasing versus decreasing exogenous reserve prices) for selling the two objects.

Bidding in First Price Sealed Bid Common Value Auctions: A Computational Approach

Computational methods are used to analyze bidding in first price sealed bid auctions for abroad range of realistic scenarios. Bidders valuations may have both common value and firm-specific components, and the accuracy of their estimates of the common value component may differ. In addition, we allow for a subset of “naive” bidders, defined as bidders who do not account for the Winners’ Curse. Following Rothkopf (1969, 1980), Wilson (1984), and Compte and Postlewaite (2012), we obtain a constant Shading Factor that maximizes ex-ante expected profits. Our computations show that profit-maximizing shading is greatly impacted by asymmetries in the bidding population and, in particular, by the presence of naive bidders. Failing to account for the presence of naive bidders results in underbidding only in one case, when facing a single rival who is naive, and in overbidding in all other cases. Overbidding is particularly severe when the population of naive competitors is large.

On asymmetric reserve prices

We investigate equilibrium bidding in first-price auctions with asymmetric reserve prices. For example, the auctioneer may set a low reserve price for one subset of bidders and a high reserve price for others. When used to pursue a distributional objective, lowering the reserve price for some bidders channels benefits toward marginal agents in the favored group and does not adversely impact non-favored bidders whose reserve price is unchanged. Even in symmetric environments, when the valuation distribution is not regular, introducing asymmetric reserve prices can increase the auctioneer's revenue compared to an optimal common reserve price. Implications for auction design are considered.

Endogenous Worst-Case Beliefs in First-Price Auctions

Bidding in first-price auctions crucially depends on the beliefs of the bidders about their competitors' willingness to pay. We analyze bidding behavior in a first-price auction in which the knowledge of the bidders about the distribution of their competitors' valuations is restricted to the support and the mean. To model this situation, we assume that under such uncertainty a bidder will expect to face the distribution of valuations that minimizes her expected utility, given her bid is an optimal reaction to the bids of her competitors induced by this distribution. This introduces a novel way to endogenize beliefs in games of incomplete information. We find that for a bidder with a given valuation her worst-case belief just puts sufficient probability weight on lower valuations of her competitors to induce a high bid. At the same time the worst-case belief puts as much as possible probability weight on the same valuation in order to minimize the bidder's winning probability. This implies that even though the worst-case beliefs are type dependent in a non-monotonic way, an efficient equilibrium of the first-price auction exists.

Synergy-based Bidding Method for Simultaneous Freight Transportation Auctions

Abstract The tremendous use of the Internet has led freight transportation procurement websites to become an effective marketplaces that bring together several carriers and shippers. These websites enable transportation of goods in a more cost effective and safer way. From the carriers’ point of view, this situation gives rise to the bid price determination problem in an auction based fast procurement process. Carriers place bids in multiple auctions simultaneously without knowing the lanes they win until the end of the auctions. This leads to uncertainty in the calculation of the lane bid price quotes at the beginning of the auctions. Kuyzu et al. (2015) proposed a stochastic bid price optimization model for addressing the uncertainty in simultaneous procurement auctions. However, their model is a non-concave maximization problem that requires historical data and solving an exponential number of NP-Hard optimization problems. In real-life situations, several auctions may need to be priced simultaneously. In this study, we propose a simpler approach so that the bid prices can be determined simultaneously with less computational effort. We develop an efficient synergy-based method to calculate a full truckload carrier’s bid prices so that the carrier can compete with other carriers and win the tendered lanes in a profitable way. We validate the effectiveness of the synergy-based method through computational experiments involving simulations of a virtual transportation procurement auction marketplace.

Common Values, Unobserved Heterogeneity, and Endogenous Entry in U.S. Offshore Oil Lease Auctions

An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders' willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements and demonstrate that our specification is generated by a fully specified game motivated by our application. We show that important features of the model are nonparametrically identified and propose a semiparametric estimation approach designed to scale well to the moderate sample sizes typically encountered in practice. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity - three distinct phenomena with different implications for policy and empirical work - are all present and important in U.S. offshore oil and gas lease auctions. We find that ignoring unobserved heterogeneity in the empirical model obscures the presence of common values. We also examine the interaction between affiliation, the winner's curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue.

Regional Load Balancing Circuitous Bandwidth Allocation Method Based on Dynamic Auction Mechanism

Aiming at the problem of link congestion caused by the shortage of network bandwidth resources at the user end, this paper first proposes a regional load balancing idea. Then, for the problem of bandwidth resource allocation in regional load balancing, a bandwidth allocation model is established and a dynamic auction algorithm is proposed. The algorithm calculates the link quality and stability by constructing a link model, and introduces the auction bandwidth to the auctioneer's incentive degree to obtain the auction bidding function. The simulation results show that the algorithm can effectively improve the user's network status, reduce the service response delay, increase the throughput, and at the same time can effectively prevent the auction user's false bidding behavior, so that the auction quote quickly converges to the maximum quote, reduces the number of auctions, and reduces Communication overhead.

Analyzing pricing, promised delivery lead time, supplier-selection, and ordering decisions of a multi-national supply chain under uncertain environment

Nowadays, price and delivery lead time are taken into account as important priorities of customers so that market demand often is sensitive to selling price and promised delivery lead time of products especially in pharmacy industry. Therefore, this study analyzes the optimal decisions of multi-national capacity-constraint producers and one retailer, as the members of a pharmacological chain, under demand response time uncertainty. The retailer, who faces price and delivery lead time dependent demand, orders its needed products from the selected producers with different nationalities to supply the market demand at the promised delivery lead time. Suppose that lost sale shortage occurs when the products are received after this promised lead time. Here, the optimal pricing, ordering, promised lead time, and supplier-selection policies are examined under three different game-theoretic approaches involving a decentralized approach under an open bid auction strategy, a centralized approach as well as a cooperative approach where demand is uncertain. Following, a numerical example and sensitivity analyses are surveyed the efficiency of a proposed model.

Sequential Bidding in Asymmetric First Price Auctions

AbstractWe study asymmetric first price auctions in which bidders place their bids sequentially, one after the other and only once. We show that, when bidders’ values are drawn from uniform distributions and are asymmetric, i.e., there is a strong bidder and a weak bidder (the strong bidder’s distribution first order stochastically dominates that of the weak bidder’s), the expected revenue in the sequential bidding first price auction (when the strong bidder bids first) may be higher than in the simultaneous bidding first price auction as well as the simultaneous bidding second price auction. The expected payoff of the weak bidder is also higher in the sequential first price auction. Therefore a seller interested in increasing revenue facing asymmetric bidders may find it beneficial to order them and let them bid sequentially instead of simultaneously.

An experiment on first-price common-value auctions with asymmetric information structures: The blessed winner

In common-value auctions bidders have access to public information, and may also hold private information prior to choosing their bids. The literature has predominately focused on the case in which bidders are ex-ante symmetric and privately informed, and finds that aggressive bidding such that payoffs are negative is common (the winner's curse). In practice, bidders often only have access to public information, and use this information to form (possibly differing) beliefs. In addition, a bidder who is not privately informed may face bidders who are. We examine bidding behavior of both informed and uninformed bidders, and vary the information structure they face. We find that uninformed bidders underbid dramatically and persistently, while informed bidders tend to overbid in the two-bidder case. Our results highlight the importance of correctly modeling the information available to bidders.

Large multi-unit auctions with a large bidder

We compare equilibrium bidding in uniform-price and discriminatory auctions when a single large bidder (i.e., with multi-unit demand) competes against many small bidders, each with single-unit demands. We show that the large bidder prefers the discriminatory auction over the uniform-price auction, and we provide general conditions under which small bidders have the reverse preference. We use examples to show that the efficiency and revenue rankings of the two auctions are ambiguous.

Reverse Auction Bidding: Studying Player Behavior

Reverse auction bidding is a recent development in the auctioning of goods and services. Significant controversy exists within the construction industry as to whether reversed auction bidding is akin to bid shopping. This is a serious ethical question for the engineering and construction community and one that is worthy of research. First, in the simplest terms, the practical purpose of this paper is to outline the development of a simple web-based game that allows for a controlled study of reverse auction bidding with a standard cohort of trained construction-oriented players and to outline the statistical results of the different games played between 2004 and 2016. These studies provide the pragmatic and statistical framework within a very highly structured game to consider the truth of this paper’s hypothesis, which is that an economically efficient player exists in legal game play. In this paper, the legal game play must coincide with actual construction bidding methods and law. The hypothesis is shown to be true in this study of reverse auction bidding. An economically efficient bidder is someone wanted on a good bidding team; this simple game provides a quick and simple classification system and a good training tool. Second, the utility of the study, not as a bidding method in the real world, but as a training tool for bidding specialists is outlined and the statistical data shown to provide the definition for economically efficient players and nonefficient players is summarized and explained in terms of application to the real world and game theory. The ultimate objective is to create an artificially intelligent player who passes a Turing test for the game, and who maximizes the returns within the valid monetary and utility matrix models used by game players.

Identification of time and risk preferences in buy price auctions

Buy price auctions merge a posted price option with a standard bidding mechanisms, and have been used by various online auction sites including eBay and General Motors Assistance Corporation. A buyer in a buy price auction can accept the buy price to win with certainty and end the auction early. Intuitively, the buy price option may appeal to bidders who are risk averse or impatient to obtain the good, and a number of authors have examined how such mechanisms can increase the seller's expected revenue over standard auctions. We show that data from buy price auctions can be used to identify bidders' risk aversion and time preferences. We develop a private value model of bidder behavior in a buy price auction with a temporary buy price. Bidders arrive stochastically over time, and the auction proceeds as a second‐price sealed bid auction after the buy price disappears. Upon arrival, a bidder in our model is allowed to act immediately (i.e., accept the buy price if it is still available or place a bid) or wait and act later. Allowing for general forms of risk aversion and impatience, we first characterize equilibria in cutoff strategies and describe conditions under which all symmetric pure‐strategy subgame‐perfect Bayesian Nash equilibria are in cutoff strategies. Given sufficient exogenous variation in auction characteristics such as reserve and buy prices and in auction lengths, we then show that the arrival rate, valuation distribution, utility function, and time‐discounting function in our model are all nonparametrically identified. We also develop extensions of the identification results for cases where the variation in auction characteristics is more limited. Nonparametric identification auctions risk aversion time preferences C14 C57 D44 L81

Preemptive Bidding in Common Value Takeover Auctions: Social Surplus and Seller's Revenue

This paper develops a model of preemptive jump bidding in common value takeover auctions. It shows that in a case of common values jump bidding increases the social surplus, and, under certain conditions, can lead to higher expected seller’s revenue. It also demonstrates that an increase in investigation costs may improve social efficiency even if they lead to direct social costs. Based on its results, the paper provides several implications related to legal fees and the length of takeover auctions.

Preemptive bidding and Pareto efficiency in takeover auctions

This paper extends the Fishman (1988) model of preemptive jump bidding in private value takeover auction to auctions with common and affiliated values. We show that in the presence of a common value component, jump bidding equilibrium results in higher social surplus. Furthermore, we show that, under certain conditions, allowing for preemptive jump bidding in common value auctions results in ex-ante Pareto improvement.

Central Counterparty Auction Design

We analyze the role of auctions in managing the default of a clearing member in a generic central counterparty (CCP). We first consider three established alternative sealed bid auction formats in which clearing members simultaneously submit bids for a defaulting clearing member’s portfolio: first price without penalty, first price with penalty, and first price with budget constraints. Under our assumptions regarding bidders’ behaviour, although the revenue of the portfolio by the CCP might be the same for these auction formats mentioned above, there could be significant differences in the externalities arising from each of them. Additionally, this paper considers how mechanisms to incentivize competitive bidding could, in some circumstances, have adverse implications for financial stability by inefficiently distributing losses to surviving clearing members. In response to these potential adverse implications, we propose a fourth auction type — second price with loss sharing — which takes into account a bidder’s consideration that may bear part of the CCP’s losses.