Standard Auction Research Articles

On the trade-off between supplier diversity and cost-effective procurement

The COVID-19 pandemic has highlighted the need to rely on a diverse pool of suppliers, besides achieving cost effectiveness. Common wisdom, however, holds that these two aims are in conflict. We explore a model of dual sourcing and propose complementing a share auction with affirmative action to create an endogenous set-aside for a high-cost supplier. In our model more intensive affirmative action strengthens the targeted provider. This has the potential to level the playing field, inducing more competitive procurement overall. Our main result provides a condition under which the endogenous set-aside not only guarantees a very substantial share for the high-cost supplier, but also reduces the buyer's provision cost compared to a standard auction. We also illustrate how our approach can help reducing the severity and likelihood of health product shortages, such as those occurred during the COVID-19 outbreak.

Efficient Consignment Auctions

Abstract Consignment auctions are two-stage mechanisms to (re)-allocate emission permits. Firms are first endowed with permits and then allowed to trade them. We determine theoretically endowments that enable efficient allocation, subject to incentive compatibility, individual rationality, and no deficit. All firms prefer efficient consignment auctions to efficient standard auctions, making them politically palatable. Firms' investment incentives align with the first-best in efficient consignment auctions. Grandfathering based on efficient long-run allocations induces efficiency-permitting endowments. A simple calibration to data from Southern California's RECLAIM program validates our no-deficit assumption and shows that grandfathering provides the best theoretical match for the empirically observed endowments.

Post-auction investment by financially constrained bidders

This study examines auctions in which the value of goods is endogenously determined by ex post investment while bidders face financial constraints. The main results are twofold. First, we characterize performance comparisons on revenue and investment between standard auctions. When the valuation is linear in investment, we have the equivalence theorem with respect to the seller's expected revenue and the winner's expected investment. When the valuation is concave in investment, the first-price auction yields higher expected revenue than the second-price auction. In addition, under additional conditions, the expected investment is larger in the second-price auction. Second, we analyze mechanisms other than simple auctions when sellers aim to promote investment. Scoring auctions increase the winner's investment at the expense of a decrease in revenue compared to price-only auctions.

Optimal Sequential Selling Mechanism and Deal Protections in Mergers and Acquisitions

ABSTRACTWe study the dynamic profit‐maximizing selling mechanism in a merger and acquisitions (M&A) environment with costly bidder entry and without entry fees. Depending on the parameters, the optimal mechanism is implemented by a standard auction or by a two‐stage procedure with exclusive offers to one bidder followed by an auction potentially favoring that bidder. The optimal mechanism may involve common deal protections like termination fees, asset lockups, or stock option lockups. Our proposed procedures resemble sales of targets filing Chapter 11 bankruptcy or M&A involving public targets, and they shed light on how to use deal protections in practice.

Optimal Bidder Selection in Clearing House Default Auctions

Default auctions at central counterparties (or ‘CCPs’) are critically important to financial stability. However, due to their unique features and challenges, standard auction theory results do not immediately apply. This paper presents a model for CCP default auctions that incorporates the CCP’s non-standard objective of maximizing success above a threshold rather than revenue, the key question of who participates in the auction and the potential for information leakage affecting private portfolio valuations. We show that an entry fee, by appropriately inducingmembers to participate or not, can maximize the probability the auction succeeds. The result is novel, both in auction theory and as a mechanism for CCP auction design.

Financial Bubbles in Infinitely Repeated Auctions with Tokens

An auctioneer holds an infinite sequence of private value auctions. He can accept payments in a blockchain-based token that he creates and initially owns. I show that relative to a standard auction with dollars, the present-discounted value of the expected revenues is higher whenever financial bubbles on tokens emerge, which happens when the rate at which investors use their tokens for bidding is sufficiently low. Financial bubbles can also emerge if the auctioneer uses dollars and issues equity. But in this case, a bubble is possible only if an increasing amount of aggregate wealth is invested in equity, which seems counterfactual.

Rejection prices and an auctioneer with non-monotonic utility

This paper considers an auctioneer who has a non-monotonic utility function with a unique maximizer. The auctioneer is able to reject all bids over some amount by using rejection prices. We show that the optimal rejection price for such an auctioneer is lower than and equal to that maximizer in first-price and second-price sealed-bid auctions, respectively. Further, in each auction we characterize a necessary and sufficient condition that by using the optimal rejection price not only the auctioneer but also bidders can be better off, compared to a standard auction. Finally, we find that the auctioneer strictly prefers a first-price sealed-bid auction if he is risk-averse when his revenue is lower than the maximizer or if the distribution of revenues which are lower than the maximizer in a standard first-price sealed-bid auction is first-order stochastic dominant over the one in a standard second-price sealed-bid auction.

Contextual Standard Auctions with Budgets: Revenue Equivalence and Efficiency Guarantees

The internet advertising market is a multibillion dollar industry in which advertisers buy thousands of ad placements every day by repeatedly participating in auctions. An important and ubiquitous feature of these auctions is the presence of campaign budgets, which specify the maximum amount the advertisers are willing to pay over a specified time period. In this paper, we present a new model to study the equilibrium bidding strategies in standard auctions, a large class of auctions that includes first and second price auctions, for advertisers who satisfy budget constraints on average. Our model dispenses with the common yet unrealistic assumption that advertisers’ values are independent and instead assumes a contextual model in which advertisers determine their values using a common feature vector. We show the existence of a natural value pacing–based Bayes–Nash equilibrium under very mild assumptions. Furthermore, we prove a revenue equivalence showing that all standard auctions yield the same revenue even in the presence of budget constraints. Leveraging this equivalence, we prove price of anarchy bounds for liquid welfare and structural properties of pacing-based equilibria that hold for all standard auctions. In recent years, the internet advertising market has adopted first price auctions as the preferred paradigm for selling advertising slots. Our work, thus, takes an important step toward understanding the implications of the shift to first price auctions in internet advertising markets by studying how the choice of the selling mechanism impacts revenues, welfare, and advertisers’ bidding strategies. This paper was accepted by Itai Ashlagi, revenue management and market analytics. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4719 .

개별입지 공장 경매 매각가율 결정요인

In this study, an empirical analysis was conducted by utilizing multiple regression analysis to determine the factors affecting the sale price rate of unplanned factory auctions in Hwaseong city. The sale price rate of unplanned factory auctions was used as the dependent variable. The inherent characteristics of the factory such as land price ratio, presence of unauthorized buildings and mechanical equipment, construction periods the width of the road, planning management for use district, and standard auction characteristics showing the presence or absence of lien, active bids, and liquidity used as independent variables in this study. As a result of multiple regression analysis, factories with higher equity to land price ratio, constructed in less than 10 years, and liquidity of an underlying asset had a positive (+) effect on the auction sale price rate. On the contrary, factories that had road widths less than 4 meters, with more machinery, active liens, and failed to meet the bids had a negative (-) effect on the auction sale price rate. The significance of variables that impected the auction sale price rates are in the following order: failure to meet bids, land price ratio, constructed in less than 10 years, presence of lien, machinery, roads with a width less than 4m, and liquidity of the underlying asset. The contribution of this study is that at a time when auction research on factories was lacking, the factors influencing the sale price rate of individual location factories were identified by using successful bids in court auctions, and the determinant of the auction sale price rate is provided for reliable decision-making to end users and medium-sized enterprises participating in factory auctions.

Introducing Consignment Auctions of Emission Allowances to China’s National ETS

China, as one of the most important players in the context of decarbonization, kickstarted its national emission trading schemes (ETS) in 2021, which is a market-based mechanism that puts a price on emission activities so as to incentivize companies to implement new technologies that reduce greenhouse gas emissions in a cost-effective manner. However, there are many issues remain unsettled in China’s National ETS. One of the issues is how to generate a clear carbon price signal in the ETS. This paper argues that the price signal can be improved by implementing an auction mechanism in the distribution of the emission allowance. By analyzing California’s ETS and the challenges that China faces when implementing the standard auction to its ETS, this paper proposes to introduce the consignment auction mechanism as a transition method toward a standard auction so as to improve the carbon price signal in a relatively short term.

On the Prevalence of Small Reserve Prices in Standard Auctions

On the Prevalence of Small Reserve Prices in Standard Auctions

Implementing optimal outcomes through sequential auctions

AbstractWe study sequential auctions as optimal mechanisms for selling multiple heterogeneous items to unit‐demand buyers. We find that as long as the items can be ordered in decreasing variation of the buyers' values, any combination of static standard auctions in this sequence achieves full efficiency and the constrained optimal revenue, subject to (BIC), (IIR), and the all‐sold constraint. In addition, with increasing threshold types and optimal static reserve prices, any l‐th price auctions in the same sequence can achieve the optimal revenue subject to (BIC) and (IIR). Our results have implications for practical auction design, such as sponsored search auctions.

Teams and individuals in standard auction formats: decisions and emotions

Our study compares individual and team bidding in standard auction formats: first-price, second-price and ascending-price (English) auctions with independent private values. In a laboratory experiment, we find that individuals overbid more than teams in first-price auctions and deviate more from bidding their own value in second-price auctions. However, we observe no difference in bidding behavior in English auctions. Based on control variables, we provide evidence that the observed difference could be explained by better reasoning abilities of teams. Emotions seem to play a role in determining bids, but the effect of emotions on bidding does not differ between individuals and teams.

Dutch vs. first-price auctions with expectations-based loss-averse bidders

We study Dutch and first-price auctions with expectations-based loss-averse bidders and show that the strategic equivalence between these formats no longer holds. Intuitively, as the Dutch auction unfolds, a bidder becomes more optimistic about her chances of winning; this stronger “attachment” effect pushes her to bid more aggressively than in the first-price auction. Thus, Dutch auctions raise more revenue than first-price ones. Indeed, the Dutch auction raises the most revenue among standard auction formats. Our results imply that dynamic mechanisms that make bidders more optimistic raise more revenue, thereby rationalizing the use of descending-price mechanisms by sellers in the field.

Promoting Entry and Efficiency via Reserve Prices

Reserve prices are used by sellers to modify the allocation induced by standard auctions. The existing literature has shown that, if the number of bidders is fixed, a reserve price can be used to increase expected revenues. This comes at the expense of efficiency when the auctioned good goes unsold. Instead, when the number of bidders is not fixed, a reserve price may discourage entry. The reduction in the number of bidders caused by the reserve price in this situation is detrimental for both revenues and efficiency. This work shows that a different conclusion may emerge when potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale. In fact, we show that reserve prices may lead to more entry and raise the efficiency. Applications characterized by the presence of an incumbent who is better informed about some common characteristics of the object for sale may yield the type of features that are needed for our different conclusion to hold.

Last minute only bidding is implausible in eBay sealed bid type-of-auctions

In recent years internet auctions have attracted much attention. This paper discusses the "last minute bidding" (sniping) phenomenon, first investigated by Roth and Ockenfels (American Economic Review 92, 1093-1103) in eBay, fixed-end, auctions. Unlike standard auctions where each offer is processed by the auctioneer due to system traffic, and connection time, in eBay auctions very late bids may be left unprocessed. In the paper we consider a simple two-players, two-periods sealed-bid auction model, inspired by eBay auctions, with private values and complete information. The main difference with respect to e-Bay auctions is given by the first period. Indeed, players can submit at most one bid per period. In the first stage bids are processed with certainty by the system while in the second stage, with positive probability, bids may not be processed due to system congestion. Unlike eBay we show how in this model last minute, that is second stage only, bidding may have low plausibility, as it can be a Nash equilibrium only under very specific circumstances and is never a unique best reply. Intuitively this is because the first stage is sealed-bid, with at most one offer per bidder, and players have no guarantee that they could outbid the opponent in the second period, once after the first round they realise that their bid is not the best.

Basic Bidding Formats: Characteristics and Differences

Abstract In standard auction theory, the ‘revenue equivalence theorem’ asserts that the outcomes of the elementary allocation methods coincide. However, bidding processes differ fundamentally with regard to the decision situation of the participants: Is it at all imperative to take into consideration the number of competitors (‘stochastic’ strategy) or not (‘deterministic’ course of action)? Furthermore, established auction theory neglects the operating modes of procurement alternatives under uncertainty. Apart from the lacking knowledge how many rivals have to be beaten, tenderers regularly are ignorant of the buyer’s reserve price. Then it is even more tentative to calculate an offer based on probability theory. Consequently, the suppliers’ propensity to collude increases.

Charity auctions from an economic perspective — literature review

One of the most common means of raising funds is the charity auction. At charity auctions, money is collected for a good cause, and the products are purchased for private consumption — the bidders may achieve both public and private gains. The charitable nature of this type of auction makes them different from standard auctions. The paper aims to present the main characteristics of this fundraising strategy as well as make a comparison with other formats of raising money for a good cause, i.a. lotteries. Furthermore, the main differences between charity and non-charity auctions will be explained. The studies do not clearly demonstrate whether the charity auction is a more effective mechanism of raising funds than the lottery. However, there is evidence that both formats outperform voluntary contributions. From the perspective of charity organizations, the most effective charity auction format seems to be the all-pay auction. The studies have also revealed that revenues at charity auctions are higher than at standard auctions.

Analysis of spectrum pricing for commercial mobile services: A cross country study

The Simultaneous Multiple Round Ascending Auction (SMRA) pioneered by Milgrom, Wilson and McAfee in 1994 has become a defacto standard auction mechanism for the award of radio spectrum for commercial mobile services around the world. The winning bid price in such SMRA spectrum auctions is of interest as it determines the valuation of the scarce resource by the mobile operators, and also indicates the revenue accrued to the governments as auction proceeds. We examine, using a cross-country panel dataset, the determinants of spectrum prices, of all the SMRA auctions held in about 25 countries during 1994–2019. Our findings indicate that reserve prices fixed by the auctioneer as the starting price of auctions and the competition in the auction are the two variables that significantly affect the winning bid prices positively in SMRA auctions. The effect of reserve prices is more pronounced in regional auctions held in countries such as the U.S. and India. Further, the larger the amount of spectrum put on auction, lesser is the winning bid price, thereby indicating the traditional supply-demand relationship. Based on these findings, we provide policy prescriptions on fixing appropriate reserve prices, providing a clear visibility of spectrum availability, and increasing competition in mobile services for effective use of scarce radio spectrum.

Risk aversion and auction design: Theoretical and empirical evidence

Auctions are inherently risky: bidders face uncertainty about their prospects of winning and payments, while sellers are unsure about revenue and chances of a successful sale. Auction rules influence the allocation of risk among agents and the behavior of risk-averse bidders, leading to a breakdown of payoff and revenue equivalence and a heightened significance of auction design decisions by sellers. In this paper, we review the literature on risk aversion in auctions, with an emphasis on what can be learned about auction design from theoretical modeling and empirical studies. We survey theoretical results relating to the behavior of risk-averse agents in auctions, the comparison of standard auction formats in the presence of risk aversion and implications for auction design. We discuss standard and more recent approaches to identifying risk preferences in empirical studies and evidence for the significance of risk aversion in auction applications. Finally, we identify areas where existing evidence is relatively scant and ask what questions empirical research might ask given the theory and where further theoretical research may be beneficial given existing empirical results.