Oral Auction Research Articles

The Use and Performance of Sealed Bid versus Oral Timber Auctions by State Forestry Agencies: A Minnesota Case Study

Abstract State governments are responsible for the stewardship and management of more than 28 million ha of forest land in the United States. This study presents the findings of an in-depth examination of the characteristics and performance of sealed bid and oral auctions using records from more than a thousand tracts offered for sale by the Minnesota Department of Natural Resources, which administers one of the nation’s most robust state timber sale programs. The study found that although tracts offered for sale through oral and sealed bid auctions sold at the same rate and are undifferentiated with respect to nearly all characteristics, sealed bid tracts generated significantly higher winning prices and additional revenue per hectare than tracts sold using oral auctions. Logging businesses were more likely to win sealed auctions than oral auctions, and their portfolio of purchased tracts contained a higher proportion acquired through sealed bid auctions than the portfolio of sealed bid tracts purchased by mills. The study adds to the limited body of literature on public agency timber auctions and is the first to provide a detailed analysis of the auction methods used by a state forest management agency. Study Implications: Public agencies use sealed bid and oral auctions to sell timber rights. This study of the nation’s largest state timber sale program found that the auction method used affects winning bid prices, the likelihood certain categories of bidders will win the auction, the allocation of timber to mills and logging businesses, and revenue generated for each hectare of timber sold. State timber sale program administrators may be able to use these findings to better understand how the choice of auction method affects the financial performance of their timber sale program as well as the allocation of timber among the major types of bidders.

Kiviq.us: A free double auction Internet classroom experiment that runs on any student device

This Web site URL: https://www.kiviq.us provides an online version of the double oral auction that works on all student Internet-enabled devices, including smartphones and iPads, without requiring ...

Встановлення ринкових цін на необроблену деревину

В Україні обсяги використання деревного ресурсу щорічно збільшуються, частину якого на суму понад 1 млрд дол. США експортують за кордон. Вигідність експортування круглого лісу зумовлена ціновою різницею на 30–40 % на внутрішньому та зовнішньому ринках. На сучасному етапі розвитку країни не вдалось реалізувати напрями державної цінової політики зі забезпечення збалансованості ринку необробленої деревини та запобігання зловживанню монопольним становищем у сфері ціноутворення на лісові ресурси. Для відродження вітчизняної деревообробної промисловості та стабілізації поставок деревної сировини на внутрішній ринок в Україні з 2017 р. строком на 10 років заборонено експорт необробленої деревини та дров паливних, завдовжки понад 2 м. В Україні тривають суперечки між лісогосподарської галуззю та галузями лісопромислового комплексу (ЛПК) щодо встановлення справедливого ринкового механізму ціноутворення та динаміки відпускних цін на необроблену деревину. Останніми роками загострились суперечності між великим і дрібним вітчизняним бізнесом деревообробної галузі щодо рівних можливостей закупівель необхідних обсягів деревної сировини та встановлення прийнятних ринкових цін. Дискусійним залишається й питання економічної доцільності та правомірності фактичного керування з боку Держлісагентства України та регіональних органів управління лісогосподарської галуззю процесом встановлення цін на деревну сировину підвідомчих лісогосподарських підприємств. Наведено результати та доведено економічну ефективність для постійних лісокористувачів електронних дистанційних аукціонів з продажу необробленої деревини, проведених упродовж 2017 – І кварталу 2018 рр., порівняно з очними торгами. Визначено основні недоліки та проблеми ціноутворення на продукцію необробленої деревини, що виникають за умов її реалізації на усних аукціонах. Встановлено недосконалість дієвого в Україні механізму організації та проведення аукціонів з продажу необробленої деревини. Запропоновано заходи з поліпшення механізму проведення аукціонів та підходів до ціноутворення на продукцію необробленої деревини.

Fast Convergence in the Double Oral Auction

A classical trading experiment consists of a set of unit demand buyers and unit supply sellers with identical items. Each agent’s value or opportunity cost for the item is his private information, and preferences are quasilinear. Trade between agents employs a double oral auction (DOA) in which both buyers and sellers call out bids or offers that an auctioneer recognizes. Transactions resulting from accepted bids and offers are recorded. This continues until there are no more acceptable bids or offers. Remarkably, the experiment consistently terminates in a Walrasian price. The main result of this article is a mechanism in the spirit of the DOA that converges to a Walrasian equilibrium in a polynomial number of steps, thus providing a theoretical basis for the empirical phenomenon described previously. It is well known that computation of a Walrasian equilibrium for this market corresponds to solving a maximum weight bipartite matching problem. The uncoordinated but mildly rational responses of agents thus solve in a distributed fashion a maximum weight bipartite matching problem that is encoded by their private valuations. We show, furthermore, that every Walrasian equilibrium is reachable by some sequence of responses. This is in contrast to the well-known auction algorithms for this problem that only allow one side to make offers and thus essentially choose an equilibrium that maximizes the surplus for the side making offers. Our results extend to the setting where not every agent pair is allowed to trade with each other.

A Classroom Experiment on Banking

This classroom experiment uses double oral auction credit markets to illustrate the role of banks as financial intermediaries. The experiment demonstrates how risk affects market interest rates in the presence of asymmetric information. It provides fodder for a discussion of the moral-hazard problem of deposit insurance and its impact on depositor and bank behavior. The basic experiment can be extended to include the effect of political risk on credit markets. The experiment can be used in principles, intermediate macroeconomics, or money and banking courses with 8–75 students. It takes 50–75 minutes to run, depending on class size, and requires no computers.

Revenue and Duration of Oral Auction

This paper investigates the revenue and duration of a well-known hybrid oral auction (English auction and Dutch auction) that is extensively adopted in practice, for instance the Christie’s. Unlike sealed bid auction, oral auction is featured by its complexity of dynamic process. The bidding price varies as a stochastic time series. Therefore, the duration of oral auction as well as its revenue performs randomly. From the seller’s perspective, both the revenue and the duration are so important that extra attention and effort should be put on auction design. One of the most important issues is how to choose the starting bid price to maximize its revenue or minimize its duration. In this paper, the bidding process is decomposed into two phases: English auction (descending-bid) phase and the Dutch auction (ascending-bid) phase. For each phase, with the aid of Markov method, we derive the expected revenue and duration as a function of the starting bid. For an oral auction with a large number of bidder and each bidder behaves independently, we provide the limit results of the expected revenue and duration. The results of the auction model can be easily implemented in auction design.

A Classroom Inflation Uncertainty Experiment

This classroom experiment uses a double oral auction credit market to demonstrate how inflation uncertainty causes a wealth transfer between borrowers and lenders.The experiment also shows the social cost of inflation uncertainty when borrowers and lenders cannot agree on a nominal interest rate that compensates each for their risk. In this case, the credit market fails to allocate funds to the highest-valued investment projects.The experiment provides hands-on experience with the effects of anticipated and unanticipated inflation, giving students a common background for a discussion of the economic costs of inflation. It can be used in principles,intermediate macroeconomics, money and banking, or financial economics courses, with 8–60 students. It takes approximately 50 minutes to run and requires no computers.The author gratefully acknowledges Jeffrey Parker’s help designing the inflation uncertainty experiment, and the funding provided by a grant from Will and Susanna Thomas and from the Sally Ann Abshire Research Scholar Award. She also thanks Noelwah Netusil for her helpful suggestions.

Right to choose in oral auctions

Oral, right-to-choose auctions raise higher revenue when buyers are risk averse. When standard sequential and right-to-choose auctions allocate the objects in the same fashion, this means that sellers prefer the latter.

Conducting a Double Oral Auction Experiment in a High School Computer Lab: A Pilot Study

A classroom experiment is an effective device to introduce and illustrate new economic concepts. This paper describes the author's experience implementing the classic double oral auction experiment in a high school computer lab, in four classes, with students trading in a virtual market for books, using commercial online software designed for college use. The goal was to run each class through this experiment for five rounds, using a standard lab with no special software, in one class period of 50 minutes. I randomly selected one school experiment, and compared the results with a college class that had done the same experiment, according to three indicators - transactions history, aggregate efficiency, and distribution of excess gain. By the fifth round the school students' performance was comparable to that of college students. I conclude that commercial web-based college level economic experiments offer school teachers a viable way to perform experiments.

Bayesian inference in repeated English auctions

We propose a Bayesian approach to inference in repeated oral English auctions. The model allows for a dynamic behavior of the sequence of selling prices. We apply the technique to a sale of antiques and find a clear evidence of dynamic effects.

A Classroom Unemployment Compensation Experiment

This classroom experiment demonstrates how unemployment compensation can affect unemployment rates and wages. Students take the roles of workers and employers who use double oral auction labor markets to negotiate employment contracts. The instructor takes the role of a government that offers progressively higher levels of unemployment compensation. The experiment generates data that students can analyze to test the general predictive power of economic theory. Students also use their data to test the specific hypothesis that higher unemployment compensation increases the unemployment rate and causes wage compression.

A Classroom Unemployment Compensation Experiment

This classroom experiment demonstrates how unemployment compensation can affect unemployment rates and wages. Students take the roles of workers and employers who use double oral auction labor markets to negotiate employment contracts. The instructor takes the role of a government that offers progressively higher levels of unemployment compensation. The experiment generates data that students can analyze to test the general predictive power of economic theory. Students also use their data to test the specific hypothesis that higher unemployment compensation increases the unemployment rate and causes wage compression. This experiment can be used in an introductory undergraduate macroeconomics course as a hands-on demonstration of the effects of unemployment compensation. During the course of the experiment, students observe how progressively higher levels of unemployment compensation affect unemployment rates, wages, and the distribution of income between skilled and unskilled workers. Because of its interactive nature, the experiment works best in classes of 16 to 50 students. However, the author and other professors have successfully run it in classes as small as 12 and as large as 90. It requires 45 minutes to run. The experiment uses two labor markets: one for skilled labor and one for unskilled labor. The markets operate simultaneously. Students take the roles of workers and employers who negotiate employment contracts in these markets using a double oral auction. See Hazlett (1999) for a general description of how to administer a double oral auction market. The experiment consists of several periods, each of which represents hiring workers for one hour of labor. An employer can hire at most one worker from each market each period. Every period, workers try to earn the highest possible net benefits from working. Likewise, employers try to earn the highest possible net benefits from hiring them.

A Water Bank Game with Fishy Externalities

This article describes a classroom game used in a minicourse on economics for Environmental Studies students. The game, inspired by the operation of the Idaho Water Bank and the rising importance of water rights trades in the region, features a double oral auction in which farmers sell diversion rights and hydroelectric companies buy them. The increased in-stream flows create external benefits for fly fishers, who participate in the game in later rounds. The game can illustrate the role of markets in allocating resource use rights, and the effects of external benefits, free riding, and price ceilings.

Corruption And Auctions

We investigate the outcome of an auction where the auctioneer approaches one of the two existing bidders and offers an opportunity for him to match his opponent's bid in exchange for a bribe. In particular, we examine two types of corruption arrangements. In the first case, the auctioneer approaches the winner to offer the possibility of a reduction in his bid to match the loser's bid in exchange for a bribe. In the second arrangement, the auctioneer approaches the loser and offers him the possibility of matching the winner's bid in exchange for a bribe. While oral auctions are corruption free under the two arrangements, corruption affects both bidding behavior, efficiency and the seller's expected revenue in a first-price auction.

The effect of entry and information costs on oral versus sealed-bid auctions

At equilibrium with respect to bids, entry and information acquisition, oral auctions can generate significantly more revenue than sealed-bid auctions even in the case of independently-distributed privately-known values.

Mergers in Sealed versus Oral Auctions

In this paper, we study mergers in oral or second-price auctions and compare them to mergers in sealed-bid or first-price auctions. We use an adaptation of the logit qualitative choice model to characterize the underlying bidder value distributions. In second-price auctions, this model has a closed-form relationship between winning bids (prices) and the probabilities of winning (shares), and this relationship gives rise to a Herfindahl-like formula that predicts merger effects. We compare mergers in second-price auctions to mergers in first-price auctions. Despite their differences, sealed-bid merger effects are predicted by the oral Herfindahl-like formula.The source of this curious similarity is not apparent.

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.

A Free Entry and Exit Experiment

In this article, I describe an experiment that demonstrates the dynamic process that leads to long-run equilibrium in a multimarket setting. In the experiment, each student plays the part of a farmer who has to decide each period whether to supply one unit of corn, wheat, rice, or soybeans. It costs different amounts to produce each of the crops, and the prices of the crops depend on the amount supplied and consumer demand. There are no consumers in the experiment. Demand is determined from prespecified inverse demand curves that are unknown to the participants.' Students are instructed to act as profit maximizers. The goal is to see how free entry and exit lead to equal profits across markets in the long run, and how opportunity costs determine what those profits are. In addition, some subtle aspects of the process that leads to long-run equilibrium are revealed. The experiment has two stages. In each round of the first stage, students decide which one of the four markets to enter. The opportunity cost of farming is zero, and long-run equilibrium has zero accounting profits in each market. In the second stage, the government introduces a fallow program whereby it guarantees any farmer a profit of one dollar if he or she does not plant a crop. The fallow program increases the opportunity cost of farming to one dollar and makes that the equilibrium level of accounting profits. Market experiments such as the double oral-auction experiment introduced by Smith (1962) are often run in economics classes (Wells 1991; DeYoung 1993). Such experiments focus on how competitive markets clear and on the efficiency of competitive equilibrium. The experiment discussed here is a natural follow-up to the double oral auction. It should be conducted after economic profits have been defined and the short- and long-run profitability of firms in competitive markets has been discussed.

Collusion without conspiracy: An experimental study of one-sided auctions

The study investigates collusion-nonfacilitating features of one-sided auctions. We report the results of oral nondescending bid auction experiments in which the strict bid improvement rule was absent, and compare them with the results of sealed bid auction experiments. In the sealed bid experiments the outcomes converged to the competitive equilibrium. In the oral auctions, collusive outcomes emerged and were sustained with bidders using bid matching strategies. We conclude that oral auctions provide opportunities for tacit coordination and collusion enforcement that do not exist under the sealed bid. Therefore, the strict bid improvement rule becomes critical for breaking collusion.

POTENTIAL COMPETITION AND POSSIBLE COLLUSION IN FOREST SERVICE TIMBER AUCTIONS

Potential competition significantly affects the size of winning bids in Forest Service sealed‐bid timber auctions and has little effect on winning bids in oral auctions. Winning sealed bids depend even more, however, on actual competition, a result suggesting collusion. This explanation is supported using an index representing the likelihood an auction was rigged. Preclusive bidding (a type of collusion) in oral auctions is indicated by a positive relationship between hauling distances and the size of winning sealed bids. Comparisons of winning‐bid variances, overbids, and numbers of bidders across auction type support this explanation of oral auction prices.