Sealed-bid Format Research Articles

Empirical Problems of Savings Calculation in Electronic Reverse Auction

The impact of reverse auction adoption has been a very important issue recently and is the subject of many studies. We are extending research results in the field of empirical studies by examining problems with reliability of methods for cost savings calculation of electronic reverse auction adoption in business processes. Reliability of savings proclamation in research studies or promotional materials is crucial for understanding real impact, benchmarking studies or comparison of several auction strategies from different auction environments. From our experience and empirical examinations, the problem for savings calculations is based on reliability and suitability of comparative or sometimes called expected price as the core factor for savings calculations when comparing with winning price. Our empirical study was based on real data from 1198 reverse auctions in Slovak commercial sector. On the base of our study, the most frequent strategy for electronic reverse auction adoption is multi-phase auction with first phase using sealed bid format. We have identified that reliability of using comparative prices as parameter for cost savings calculations vary according to different auction situations or settings and number of participants, auction volume and ratio of new participants are very sensitive for the reliability of savings calculations.

Comparing Open and Sealed Bid Auctions: Evidence from Online Labor Markets

Online labor markets are Web-based platforms that enable buyers to identify and contract for information technology (IT) services with service providers using buyer-determined (BD) auctions. BD auctions in online labor markets either follow an open or a sealed bid format. We compare open and sealed bid auctions in online labor markets to identify which format is superior in terms of obtaining more bids and a higher buyer surplus. Our theoretical analysis suggests that the relative advantage of open versus sealed bid auctions hinges on the role of reducing service providers’ valuation uncertainty (difficulty in assessing the cost to execute a project) and competition uncertainty (difficulty in assessing the intensity of the competition from other service providers), which largely depend on the relative importance of the common value (versus the private value) component of the auctioned IT services, calling for an empirical investigation to compare open and sealed bid auctions. Based on a unique data set of 71,437 open bid auctions and 7,499 sealed bid auctions posted by 21,799 buyers at a leading online labor market, we find that, on average, although sealed bid auctions attract 18.4% more bids, open bid auctions offer buyers $10.87 higher surplus. Furthermore, open bid auctions are 55.3% more likely to result in a buyer’s selection of a certain service provider and 22.1% more likely to reach a contract (conditional on the buyer’s making a selection) with a provider, and they generate higher buyer satisfaction. In contrast to conventional wisdom that “the more bids the better” and industry practice of treating sealed bid auctions as a premium feature, our results suggest that the buyer surplus gained from the reduction in valuation uncertainty enabled by open bid auctions outweighs the buyer surplus gained from the higher competition uncertainty in sealed bid auctions, which renders open bid auctions a superior auction design in online labor markets.

How Does Bid Visibility Matter in Buyer-Determined Auctions? Comparing Open and Sealed Bid Auctions in Online Labor Markets

Online labor markets are web-based platforms that enable buyers to identify and contract for IT services with service providers using Buyer-Determined (BD) auctions. BD auctions in online labor markets either follow an open or a sealed bid format. We compare open and sealed bid auctions in online labor markets to identify which format is superior in terms of obtaining more bids and a higher buyer surplus. Our theoretical analysis suggests that the relative advantage of open versus sealed bid auctions hinges on the role of reducing service providers’ valuation uncertainty (difficulty in assessing the cost to execute a project) and competition uncertainty (difficulty in assessing the intensity of the competition from other service providers), which largely depends on the relative importance of the common value (versus the private value) component of the auctioned IT services, calling for an empirical investigation to compare open and sealed bid auctions. Based on a unique dataset of 71,437 open bid auctions and 7,499 sealed bid auctions posted by 21,799 buyers at a leading online labor market, we find that, an average, albeit sealed bid auctions attract 18.4% more bids, open bid auctions offer buyers $10.87 higher surplus. Furthermore, open bid auctions are 55.3% more likely to result in a buyer’s selection of a certain service provider, 22.1% more likely to reach a contract (conditional on the buyer’s making a selection) with a provider, and they generate higher buyer satisfaction. In contrast to conventional wisdom that “the more bids the better” and industry practice of treating sealed bid auctions as a premium feature, our results suggest that the buyer surplus gained from the reduction in valuation uncertainty enabled by open bid auctions outweighs the buyer surplus gained from the higher competition uncertainty in sealed bid auctions, which renders open bid auctions a superior auction design in online labor markets.

Spectrum auction design: Simple auctions for complex sales

Following the successful PCS Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries worldwide have switched to the combinatorial clock auction to sell spectrum. This two-stage auction uses a core-selecting payment rule. The number of possible packages a bidder can submit grows exponentially with the number of licenses, which adds complexity to the auction. For larger auctions with dozens of licenses bidders cannot be expected to reveal all their valuations during such an auction. We analyze the impact of two main design choices on efficiency and revenue: simple “compact” bid languages versus complex “fully expressive” bid languages and simple “pay-as-bid” payment rules versus complex “core-selecting” payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction׳s efficiency and simplicity of the payment rule has as a substantial positive impact on the auction׳s revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, achieves the lowest efficiency and revenue among all treatment combinations.

Spectrum Auction Design: Simple Auctions for Complex Sales

Following the successful PCS Auction conducted by the FCC in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries have switched to the combinatorial clock auction to sell spectrum. However, the number of possible packages grows exponentially with the number of licenses, which adds complexity to the auction. We analyze the impact of two main design choices: simple compact'' bid languages versus complex fully expressive'' bid languages and simple pay-as-bid'' payment rules versus complex bidder-optimal core-selecting'' payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction's efficiency and simplicity of the payment rule has as a substantial positive impact on the auction's revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, scores worst on both dimensions.

Open versus Sealed-Bid Auctions: Testing for Revenue Equivalence under Singapore's Vehicle Quota System

Using data from the auction of vehicle quota licenses in Singapore, we study if revenue equivalence holds when the auction format was switched from a sealed-bid format (May 1990 to June 2001) to an open bidding format since July 2001. Our econometric analysis indicates the change in auction format led to a change in bidding behavior. On average, the quota license premium under the open bidding format is about US$1,000 (about 7.5% of the Category E license price in June 2001) lower, compared to the forecast level that would have prevailed if there had been no change in the auction format.

NON‐COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID*

We examine the impact of potential entry on incumbent bidding behavior in license auctions, in both dynamic and sealed bid formats. Unlike sealed bid auctions, dynamic auctions reveal information about the identities of potential winners and allow bidders to revise their bids. This helps incumbents to coordinate their entry deterrence efforts. If entry is sufficiently costly for each incumbent, only the dynamic auction has an equilibrium where entry is deterred for sure. Numerical calculations suggest that, regardless of how costly entry is for each incumbent, sealed bid auctions can generate a higher probability of entry as well as a more efficient allocation.

Coasian dynamics in repeated English auctions

We extend the Coase conjecture to the case of a seller with a single object, who faces n potential buyers and holds a sequence of English auctions until the object is sold. In an independent-private-values environment in which buyers and sellers share the same discount factor, we show that the (perfect Bayesian) equilibrium path of reserve prices obeys a Coasian logic. Moreover, the equilibrium reserve path lies below that for the repeated sealed-bid, second-price auctions studied by McAfee and Vincent (in Games Econ Behav 18:246–276). Nevertheless, the open (English) and sealed-bid formats are shown to be revenue equivalent.

Optimal Bundling Strategies in Multiobject Auctions of Complements or Substitutes

We consider a problem at the interface of auctions and bundling. Our revenue-maximizing seller seeking to auction one unit each of two complements or substitutes in the best-of-three formats: the auction of the bundle, separate auctions of the individual items, and a combinatorial auction. We draw on an analytical model to address the following questions: (i) Which of the auctioning strategies is optimal under the second-price, sealed-bid format? (ii) What is the optimal strategy for the bidders? (iii) When the objects are asymmetrically valued (e.g., Super Bowl ticket versus souvenir), what is the optimal auctioning sequence under the pure components strategy? Our results suggest that separate auctions of the two objects are superior to the auction of the bundle for most substitutes and even moderate complements when there are at least four bidders. The auction of the pure bundle is better suited for strong complements or with too few bidders. When the combinatorial auction is an available option, it weakly dominates the auction of the pure bundle but has domains of inferiority relative to the separate auctions. When the objects are asymmetric in value, it is optimal to auction the higher-valued object first.

Charity Auctions: A Field Experiment

Auctions are a popular way to raise money for charities, but relatively little is known, either theoretically or empirically, about the properties of charity auctions. We conduct field experiments to see which sealed bid format, first price, second price or all-pay, raises the most money. Our experiment suggests that both the all-pay and second price formats are dominated by the first price auction. Our design also allows us to identify differential participation as the source of the difference between existing theory and the field.

Coasian Dynamics in Repeated English Auctions

We extend the Coase conjecture to the case of a seller with a single object, who faces n potential buyers and holds a sequence of English auctions until the object is sold. In an independent-private-values environment in which buyers and sellers share the same discount factor, we show that the (perfect Bayesian) equilibrium path of reserve prices obeys a Coasian logic. Moreover, the equilibrium reserve path lies below that for the model of repeated sealed-bid, second-price auctions studied by McAfee and Vincent (1997). Nevertheless, the open (English) and sealed-bid formats are shown to be revenue equivalent.

Open vs. sealed-bid auctions: testing for revenue equivalence under Singapore's vehicle quota system

Using data from the auction of vehicle quota licenses in Singapore, we study if revenue equivalence holds when the auction format was switched from a sealed-bid format (May 1990 to June 2001) to an open bidding format since July 2001. Our econometric analysis indicates the change in auction format led to a change in bidding behavior. On average, the quota license premium under the open bidding format is about US$1000 (about 7.5% of the Category E license price in June 2001) lower, compared to the forecast level that would have prevailed if there had been no change in the auction format.

A management framework for the implementation of policies for industrial ecology, Part II: a competitive bidding process

One strategy to implement Industrial Ecology (IE) is to utilise industrial waste streams as alternative sources of other needed materials. This paper is concerned with a competitive bidding process for converter selection to support the implementation of tax and subsidy policy that promotes secondary material converted from industrial waste, as a substitute for virgin material. With regard to the government's problem in determining the quota to allocate and the converter's difficulties in building strategies, we propose a two-stage sealed-bid format and rating approach using a performance index for converter selection and quota allocation. We describe a bidding procedure that can be efficient and effective for both the government and the converters participating in the bidding process. Our analysis shows that the implementation of a two-stage bidding format can improve competition among bidders, leading to a better achievement of the goal of the policy.

Charity Auctions: A Field Experimental Investigation

Auctions are a popular way to raise money for charities, but relatively little is known, either theoretically or empirically, about the properties of charity auctions. The small theoretical literature suggests that the all-pay auction should garner more money than winner-pay auctions. We conduct field experiments to test which sealed bid format, first price, second price or all-pay raises the most money. Our experiment suggests that both the all-pay and second price formats are dominated by the first price auction. Our design also allows us to identify differential participation as the source of the difference between existing theory and the field. To conclude, we show that a model of charity auctions augmented by an endogenous participation decision predicts the revenue ordering that we see in the field.

A Robust Open Ascending-price Multi-unit Auction Protocol against False-name Bids

This paper presents a new ascending-price multi-unit auction protocol. As far as the authors are aware, this is the first protocol that has an open format, and in which sincere bidding is an equilibrium strategy, even if the marginal utilities of each agent can increase and agents can submit bids. As ever-increasing numbers of companies and consumers are trading on Internet auctions, a new type of cheating called false-name has been noticed. Specifically, there may be some agents with fictitious names such as multiple e-mail addresses. The VCG is not an open format, and truth-telling is no longer a dominant strategy if agents can submit bids and the marginal utilities of each agent can increase. The Iterative Reducing (IR) protocol with a sealed-bid format is robust against bids, although it requires the auctioneer to carefully pre-determine a reservation price for one unit. Open format protocols, such as the Ausubel auction, outperform sealed-bid format protocols in terms of the simplicity and privacy-preservation. These two advantages are said to encourage more agents to bid sincerely and to provide the seller with higher revenue. We extend the Ausubel auction to our proposed protocol which can handle the cases where the marginal utilities of each agent can increase. Moreover, it is robust against bids and does not require the auctioneer to set a reservation price. Our simulation result indicates that our protocol herein obtains a social surplus close to Pareto efficient and that it outperforms the IR with respect to the social surplus and the seller's revenue.

An Exploratory Study of the Introduction of Online Reverse Auctions

Buyers are increasingly turning to online reverse auctions in their negotiations with suppliers. How do these price competition mechanisms affect buyer–supplier relationships? The author considers this question in the context of a quasi experiment involving six online reverse auctions conducted in the supply base of a major industrial buyer. The results indicate that these auctions increase both new and current suppliers’ beliefs that buyers act opportunistically, particularly in open-bid auctions. Current suppliers are generally more willing than new suppliers to make dedicated investments toward the buyer. Paradoxically, in sealed-bid auctions, both current and new suppliers increase their willingness to make dedicated investments toward the buyer. Although these auctions can yield cost savings, the savings are category specific and are not systematically related to an open- or sealed-bid format. The author also discusses implications for the use of online reverse auctions in industrial sourcing activities.

Lessons from the Nigerian GSM auction

The recent Nigerian GSM auction was the first spectrum auction to use a variation of the “Anglo-Dutch” auction format, which combines elements of the ascending and sealed bid formats. For the Nigerian Communication Commission (NCC), this auction represented a watershed event, as it was the first time the NCC had used an auction to allocate radio spectrum. In this paper, we relate a number of last minute changes in the auction rules and discuss them in the context of the stated objectives of the NCC. Moreover, we show how the experience of the Nigerian GSM auction can provide valuable insight to telecommunications policy makers into some of the challenges facing auction designers and administrators.

Ascending auctions

A key question of auction design is whether to use an ascending-bid or a sealed-bid format. The critical distinction between formats is that an ascending auction provides the bidders with information through the process of bidding. This information is a two-edged sword. It may stimulate competition by creating a reliable process of price discovery, by reducing the winner's curse, and by allowing efficient aggregations of items. Alternatively, the information may be used by bidders to establish and enforce collusive outcomes. Ex ante asymmetries and weak competition favor a sealed-bid design. In other cases, an ascending auction is likely to perform better in efficiency and revenue terms. Moreover, information in an ascending auction can be tailored to limit collusion.