English Auction Research Articles

Technology and Learning: Automating Odd-Lot Trading at the New York Stock Exchange, 1958–1976

This study analyzes how embedded beliefs about the proper ordering of financial market activities shaped the automation of the New York Stock Exchange (NYSE) during the period, 1958 to 1976. Specifically, it focuses on how technological innovation led to the unanticipated eclipse of its odd-lot dealer function, a unique niche for handling nonstandard trades of less than 100 shares. The decision to automate through computerization initially responded to a powerful cluster of managerial, governmental, and market imperatives. In automating, a high priority was given to the preservation of the NYSE’s traditional trading model—the open outcry auction system—whose defining features dated back to the late nineteenth century. This experience illustrates how unforeseen economic consequences relating to technological adoption may adversely affect significant constituencies within a business network.

Going once, going twice, reported! Cartel activity and the effectiveness of antitrust policies in experimental auctions

We experimentally examine the effectiveness of antitrust policies against bidding rings in the English auction (EN) and the first-price sealed-bid auction (FP). We consider both traditional antitrust policy (without a leniency program) and modern antitrust policy (with a leniency program). In EN, neither antitrust policy has a significant effect on cartel deterrence, cartel stability, cartel recidivism, and winning bids. In FP, traditional antitrust policy deters cartel formation, destabilizes cartels, decreases cartel recidivism, and reduces the average winning bid. The leniency program has two perverse effects in FP: cartels become more stable and the average winning cartel bid decreases. At the same time, in both auctions the leniency program triggers many more cartels to be revealed. This suggests that it is misleading to use the number of revealed cartels as a measure of the effectiveness of the leniency program.

Is the ‘Linkage Principle’ Valid? Evidence from the Field

We present field evidence concerning experienced bidders that supports the linkage principle—specifically, the prediction that in affiliated‐values auction environments the expected revenues generated at open‐outcry, ascending‐bid auctions are higher than those under auction formats that reveal less information to participants. Using field data from a large seller of automobiles who experimented with different selling formats, we have found that average revenues were significantly higher under an English auction than under a dynamic Internet auction format that revealed less information to bidders.

From English to First-Price Sealed Bid: An Empirical Assessment of the Change in Auction Type on Experienced Bidders

Abstract This paper estimate the differential impact of first-price sealed-bid (first-price) auctions relative to English auctions on auction revenue. While there is a theoretical literature on the potential outcomes of first-price relative to English auction, there is a paucity of articles that empirically estimate this relationship. The answer to this question is important not only to economists but also those designing auction for practical application. Using a unique dataset from tax lien auctions in Illinois, I empirically test the effect of a switch in auction type from English to first-price. I find auction revenue is greatly increased, by as much as 22 percent, under the first-price auction. The results are supported by a within county difference-in-difference model specification and are robust when restricting the sample across various specifications

Conceptual Approach to Effect of Information Asymmetry on Auction and Bidding

This study examines the theoretical effect of information asymmetry on auction and bidding. The study indicates the significant impact of information asymmetry on the price the winner pays in an auction process. The impact varies from one form of auction to the other. In sealed-bid auction, the more informed party has a much higher marginal expected return than the uninformed competitors. The probability of loser's curse is markedly higher than the probability of winner's curse among uninformed participants that have high private value in English auction. Since bidders are more affected by information asymmetry, it is recommended that bidder should seek for information on goods of interest and also ensure that inspection is carried out on prospective purchases before the auction commences in order to reduce the negative effect of information asymmetry on bidder.

A race beyond the bottom: the nature of bidding for a firm

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm’s foreign direct investment (FDI). We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete information, relative to those in the traditional setting of a sealed-bid first-price auction. We find that an English auction leads to more aggressive bidding in “race beyond the bottom,” where the nations may bid beyond their own valuations of the FDI. We also discuss the roles of auction protocol and information asymmetry on the auction outcome.

The ingenious marketing of modern paintings

Purpose– This paper aims to analyze the evolution of the marketing of paintings and related visual products from its nascent stages in England around 1700 to the development of the modern art market by 1900, with a brief discussion connecting to the present.Design/methodology/approach– Sources consist of a mixture of primary and secondary sources as well as a series of econometric and statistical analyses of specifically constructed and unique data sets that list nearly more than 50,000 different sales of paintings during this period. One set records sales of paintings at various English auction houses during the eighteenth and nineteenth centuries; the second set consists of all purchases and sales of paintings recorded in the stock books of the late nineteenth-century London art dealer, Arthur Tooth, during the years of 1870/1871. The authors interpret the data under a commoditization model first introduced by Igor Kopytoff in 1986 that posits that markets and their participants evolve toward maximizing the efficiency of their exchange process within the prevailing exchange technology.Findings– We found that artists were largely responsible for a series of innovations in the art market that replaced the prevailing direct relationship between artists and patron with a modern market for which painters produced works on speculation to be sold by enterprising middlemen to an anonymous public. In this process, artists displayed a remarkable creativity and a seemingly instinctive understanding of the principles of competitive marketing that should dispel the erroneous but persistent notion that artistic genius and business savvy are incompatible.Research limitations/implications– A similar marketing analysis could be done of the development of the art markets of other leading countries, such as France, Italy and Holland, as well as the current developments of the art market.Practical implications– The same process of the development of the art market in England is now occurring in Latin America and China. Also, the commoditization process continues in the present, now using the Internet and worldwide art dealers.Originality/value– This is the first article to trace the historical development of the marketing of art in all of its components: artists, dealers, artist organizations, museums, curators, art critics, the media and art historians.

Bid Increment Adjusting Strategies in English Auction-based Sponsored Search

English auctions are applied in many current e-commerce applications because of the easy implementation. Some sponsored search advertising (SSA) services consider the ascending bidding rules of English auctions to determine winners. However, the high computation cost of determining winners is the major drawback of the English auction-based SSAs. Because the SSA is an online service, Internet users do not wait for a long time to receive the searc h result pages. In this paper, we provide a mechanism to reduce the overhead of computing winners and maximize the revenue obtained by the search engine provider (SEP). Our proposed mechanism adopts the minimum increase price (MIP), which is similar to the central price in the English auction, to indicate how much should be raised for the bids with updated prices. We design a uniform MIP adjusting strategy and an adaptive MIP adjusting strategy to determine the MIP setting in each round. We analyze the convergent speed of two proposed MIP adjusting strategies. According to our simulation results, we conclude the following properties. For all the SEP revenue considerations, the adaptive MIP adjusting strategy is outstanding in popular keywords, and rare keywords for the uniform MIP adjusting strategy. Opposite results are obtained for the convergent speed.

Bid-Taker Power and Supply Base Diversification

We study a buyer who periodically auctions off short-term supply contracts among her supply base. To mitigate significant cost shocks to procurement, the buyer can diversify her supply base by selecting suppliers from different regions. We find that the buyer's decision to diversify depends on her bid-taker power—that is, her ability to choose the auction mechanism. At one extreme, when the buyer has full bid-taker power and thus can dictatorially implement the optimal mechanism, she always prefers to diversify. At the other extreme, when the buyer uses a reverse English auction with no reserve price due to her lack of bid-taker power, she generally prefers to protect herself against potential price escalation from cost-advantaged suppliers by diversifying less. The managerial insight is that the more bid-taker power the buyer has to control price escalation from cost-advantaged suppliers the more she prefers a diversified supply base. This insight is shown to be robust to correlation between regional costs, ex ante asymmetry between regions, and intermediate levels of bid-taker power.

Land leasing and local government behaviour in China: Evidence from Beijing

Since 2004, two auction mechanisms – listing auctions and tender auctions – have played a dominant role in land lease arrangements for real estate development in Beijing. Listing auctions in land markets are similar to general English auctions, where bidders offer the highest price to win. However, in tender auctions, winners are determined by the bidding price and the bidder’s financial capability and reputation. Based on granted land parcels from 2006 to 2012 in Beijing, this paper attempts to examine the price differences between the two auctions and the role of land auction in urban development and price stabilisation. We find that land policy in Beijing, which aims to stabilise land prices and to provide low-price residences, has been integrated with urban development planning in terms of spatial and density pattern. Land leasing in Beijing is not only a land policy but also a part of the strategy framework of local development.

Should Sellers Prefer Auctions? A Laboratory Comparison of Auctions and Sequential Mechanisms

When bidders incur a cost to learn their valuations, bidder entry can impact auction performance. Two common selling mechanisms in this environment are an English auction and a sequential bidding process. Theoretically, sellers should prefer the auction, because it generates higher expected revenues, whereas bidders should prefer the sequential mechanism, because it generates higher expected bidder profits. We compare the two mechanisms in a controlled laboratory environment, varying the entry cost, and find that, contrary to the theoretical predictions, average seller revenues tend to be higher under the sequential mechanism, whereas average bidder profits are approximately the same. We identify three systematic behavioral deviations from the theoretical model: (1) in the auction, bidders do not enter 100% of the time; (2) in the sequential mechanism, bidders do not set preemptive bids according to the predicted threshold strategy; and (3) subsequent bidders tend to overenter in response to preemptive bids by first bidders. We develop a model of noisy bidder-entry costs that is consistent with these behaviors, and we show that our model organizes the experimental data well. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1800. This paper was accepted by Teck Ho, behavioral economics.

How Risk Sharing May Enhance Efficiency in English Auctions

We investigate the possibility of enhancing efficiency by awarding premiums to a set of highest bidders in an English auction - in a setting that extends Maskin and Riley (1984, Econometrica 52: 1473-1518) in three aspects: (i) the seller can be risk averse, (ii) the bidders can have heterogeneous risk preferences, and (iii) the auction can have a binding reserve price. Our analysis reveals that the premium has an intricate joint effect on risk sharing and expected revenue, which in general benefits risk averse bidders. When the seller is more risk averse than the pivotal bidder - a condition often verifiable by deduction prior to the auction - the premium also benefits the seller and therefore leads to a Pareto improvement of the English auction. We discuss how this finding is related to the seller’s degree of risk aversion, the reserve price, the riskiness of the object for sale, the degree of heterogeneity in risk preferences among the bidders, and the number of the potential bidders.

English multi-attribute reverse auction model with the minimum non-monetary attributes bidding values

We propose a new English multi-attribute reverse auction model with the minimum non-monetary attributes bidding values under the procurement auction scenario. The existing multi-attribute auction models usually do not include the constraints on non-monetary attributes bidding values. Obviously, it is unreasonable because the auctioneer usually will have a requirement for the non-monetary attribute value. So we extend the multi-attribute reverse auction model and propose the structurised mathematical expressions of the optimal bidding price and non-monetary attributes for the bidders’ bidding decision. Further, we analyse the mathematical characteristics and the economic implications of these expressions. Finally, we present two numerical examples to demonstrate the minimum non-monetary attributes bidding values indeed impact on the bidders’ bidding decision and the final auction result.

Auctions with Prestige Motives

Social status, or prestige, is an important motive for buying art or collectibles and for participation in charity auctions. We study a symmetric private value auction with prestige motives, in which the auction outcome is used by an outside observer to infer the bidders’ types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in four auction formats: first-price, second-price, all-pay and the English auction. We obtain a strict ranking in terms of expected revenues: the first-price and all-pay auctions are dominating the English auction but are dominated by the second-price auction. Expected revenue equivalence is restored asymptotically for the number of bidders going to infinity.

Sequential auctions and price anomalies

In sequential auctions objects are sold one by one in separate auctions. These sequential auctions might be organized as sequential first-price, second-price, or English auctions. We will derive equilibrium bidding strategies for these auctions. Theoretical models suggest that prices in sequential auctions with private values or with randomly assigned heterogeneous objects should have no trend. However, empirical research contradicts this result and prices exhibit a declining or increasing trend, which is called declining and increasing price anomaly. We will present a review of these empirical results, as well as different theoretical explanations for these anomalies.

Development of FIPA english auction interaction protocol for multi-agent systems

Development of FIPA english auction interaction protocol for multi-agent systems

An Agent-Based Auction Protocol on Mobile Devices

This paper proposes an English auction protocol to preserve a secure, fair, and effective online auction environment, where the operations are integrated with mobile agent technology for bidders participating in online auctions. The protocol consists of four participants, namely, registration manager, agent house, auction house, and bidder.

Bid Takers or Market Makers? The Effect of Auctioneers on Auction Outcome

Auction design has been studied extensively; however, within a given design, does the process of how an auction is conducted matter as well? We address this question by looking for heterogeneity in the performance of auctioneers in English auctions. We analyze over 850,000 wholesale used car auctions and find significant differences across auctioneers in outcomes for otherwise similar cars. The performance heterogeneities are stable across time and correlate with subjective evaluations by the auction house. We discuss the mechanisms driving differential performance and find evidence suggesting a role for tactics that generate bidder excitement or urgency. (JEL D44, D82, L62)

A Point Decision for Partially Identified Auction Models

This article proposes a decision-theoretic method to choose a single reserve price for partially identified auction models, such as Haile and Tamer (2003), using data on transaction prices from English auctions. The article employs Gilboa and Schmeidler (1989) for inference that is robust with respect to the prior over unidentified parameters. It is optimal to interpret the transaction price as the highest value, and maximize the posterior mean of the seller’s revenue. The Monte Carlo study shows substantial gains relative to the revenues corresponding to a random point and the midpoint in the Haile and Tamer interval.

China's Land Market Auctions: Evidence of Corruption?

This paper studies the urban land market in China in 2003-2007. In China, all urban land is owned by the state. Leasehold use rights for land for (re)development are sold by city governments and are a key source of city revenue. Leasehold sales are viewed as a major venue for corruption, prompting a number of reforms over the years. Reforms now require all leasehold rights be sold at public auction. There are two main types of auction: regular English auction and an unusual type which we call a "two stage auction". The latter type of auction seems more subject to corruption, and to side deals between potential bidders and the auctioneer. Absent corruption, theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders, or are "cold", which would suggest negative selection on property unobservables into such auctions. However, if such auctions are more corruptible, that could involve positive selection as city officials divert hotter properties to a more corruptible auction form. The paper finds that, overall, sales prices are lower for two stage auctions, and there is strong evidence of positive selection. The price difference is explained primarily by the fact that two stage auctions typically have just one bidder, or no competition despite the vibrant land market in Chinese cities.