Types Of Auctions Research Articles

The licensing of eco-technology under emission taxation: Fixed fee vs. auction

This paper investigates the effect of emission taxation on outside innovator's licensing strategies for eco-technology and its welfare consequences when duopolistic polluting firms have different production costs and purchase licenses for pollution abatement goods. In the presence of an emission tax, we compare the two types of licensing contract, fixed fee and auction, and show that the preference on licensing strategy depends not only upon the level of the emission tax but also on the production cost gap. Specifically, non-exclusive licensing is preferred to exclusive licensing when the emission tax or cost gap is small, while exclusive auction (fixed fee) licensing is preferred when the cost gap is intermediate (large). We also analyze some important welfare issues and discuss public policies on emission taxation and licensing regulation.

Characteristics and Economic Consequences of Jump Bids in Combinatorial Auctions

Jump bidding, which refers to bidding above the minimum necessary, is a robust behavior that has been observed in a variety of ascending auctions in the field as well as the laboratory. However, the phenomenon has yet to be studied in combinatorial auctions, which are a type of multiobject auction that allows bidders to bid on a set of objects. Such auctions have been found to be beneficial when objects exhibit synergy, e.g., are complementary. In this paper, we explore jump bidding behavior in combinatorial auctions as a function of design choices of the mechanism. In particular, we examine the effects of price revelation schemes on the nature and extent of jump bidding. Furthermore, we study the effects of jump bidding on the economic performance of the auctions. To conduct our study, first, we develop hypotheses using auction theories and behavioral theories of how people use reference prices as anchors, and second, we conduct a laboratory experiment to test our hypotheses and examine bidder behavior. We find that the nature of the prices that the auctioneer chooses to offer as feedback to the bidders can considerably influence their jump bidding behavior, leading to significant differences in auction outcomes. We demonstrate that in combinatorial auctions, in addition to the theories of jump bidding proposed in the literature, bounded rationality of the bidders plays a part in the nature and extent of jump bidding. Our study reveals that in the cognitively challenging package-bidding environment, bidders often pursue computationally frugal but suboptimal heuristics. Our results have important policy implications for mechanism designers.

Two Ways to Auction Off an Uncertain Good

An auction framework is examined where each seller is uncertain about whether or not he will have a good available to sell. A timely example includes the auctioning off of radio spectrum by licensed primary users to unlicensed secondary users. A licensed primary user may not use the spectrum all of the time, but may not know in advance whether or not he will need the spectrum himself and thus whether or not he will have spectrum bandwidth available to rent out. We consider two types of auctions: an ex-post auction which takes place after each seller learns about the availability of the good and an ex-ante auction which takes place before each seller learns about availability. The expected payoffs to buyers, sellers, and to society are then compared. The ex-ante auction can cause buyers to bid on multiple expected units to ensure that they end up with at least one actual unit. Such over purchasing can create a loss to society. Sellers will prefer the ex-post auction since if fewer units are actually available to sell, then they can be sold at a higher price. Whereas in the ex-ante auction all sellers have one expected unit available to sell which results in a lower price. However, if high value buyers are common, then a buyer may prefer the ex-ante auction as it can be easier to win an expected unit than an ex-post actual unit. In contrast, if a buyer has a high valuation and if high value buyers are uncommon, then he may prefer the ex-post auction since he has a strong chance to win an actual unit.

Learning through Simultaneous Play: Evidence from Penny Auctions

This paper contributes to the emerging empirical literature on penny auctions, a particular type of all‐pay auctions. We focus on the potential learning effects that bidders may experience over time but also (and particularly) across auctions as a result of their auction participation. Using detailed bid‐level information, we find that, similarly to earlier literature, bidders suffer from a sunk cost fallacy, whereby their probability of dropping out of an auction is decreasing in the number of bids they have already placed in that auction. Although we do find that learning through repeated participation alleviates the sunk cost fallacy, participation in simultaneous penny auctions emerges as a much more effective learning mechanism, ultimately contributing toward bidders earning higher individual surpluses.

An asymmetric multi-item auction with quantity discounts applied to Internet service procurement in Buenos Aires public schools

This article studies a multi-item auction characterized by asymmetric bidders and quantity discounts. We report a practical application of this type of auction in the procurement of Internet services to the 709 public schools of Buenos Aires. The asymmetry in this application is due to firms’ existing technology infrastructures, which affect their ability to provide the service in certain areas of the city. A single round first-price sealed-bid auction, it required each participating firm to bid a supply curve specifying a price on predetermined graduated quantity intervals and to identify the individual schools it would supply. The maximal intersections of the sets of schools each participant has bid on define regions we call competition units. A single unit price must be quoted for all schools supplied within the same quantity interval, so that firms cannot bid a high price where competition is weak and a lower one where it is strong. Quantity discounts are allowed so that the bids can reflect returns-to-scale of the suppliers and the auctioneer may benefit of awarding bundles of units instead of separate units. The winner determination problem in this auction poses a challenge to the auctioneer. We present an exponential formulation and a polynomial formulation for this problem, both based on integer linear programming. The polynomial formulation proves to find the optimal set of bids in a matter of seconds. Results of the real-world implementation are reported.

Investigating the Winner’s Curse Based on Decision Making in an Auction Environment

Background. The majority of bidding models, such as those developed by Friedman and Gates focus on the mark-up decision. Despite a large body of literature, particularly related to the construction industry, these bidding models largely ignore human behavior. Aim. This article has two aims. The first is to contribute to the potential use of business games to study the results of auction behavior in a construction business environment. The second is to investigate the winner’s curse and its effects on individual companies and the market. Method. The methodology for this study is rooted in game theory. The reasoning which leads to the winner’s curse is explored through a behavioral multi-actor experiment. I developed a database-driven, online multiplayer auction game which served as a laboratory experiment. The study included 42 participants. Data were collected during the game, and debriefing results were analyzed. Results. The results show that contractors suffer from the winner’s curse for a variety of reasons including their own bidding strategy, strong competition within the construction market, and inaccurate estimates of project costs. These reasons affect the behavior of contractors and the intention to win the project’s bid as well as their willingness to take risks. Conclusion and Recommendations. The approach outlined in this article contributes to decision-making research in the context of the ‘reverse’ auction low bid method. I recommend that future researchers consider second-price, sealed-bid auctions (Vickrey auctions); this type of auction is also easy to implement.

Impossibility Results for Truthful Combinatorial Auctions with Submodular Valuations

A long-standing open question in algorithmic mechanism design is whether there exist computationally efficient truthful mechanisms for combinatorial auctions, with performance guarantees close to those possible without considerations of truthfulness. In this article, we answer this question negatively: the requirement of truthfulness can impact dramatically the ability of a mechanism to achieve a good approximation ratio for combinatorial auctions. More precisely, we show that every universally truthful randomized mechanism for combinatorial auctions with submodular valuations that approximates optimal social welfare within a factor of m 1/2−ϵ must use exponentially many value queries, where m is the number of items. Furthermore, we show that there exists a class of succinctly represented submodular valuation functions, for which the existence of a universally truthful polynomial-time mechanism that provides an m 1/2−ϵ -approximation would imply NP = RP . In contrast, ignoring truthfulness, there exist constant-factor approximation algorithms for this problem, and ignoring computational efficiency, the VCG mechanism is truthful and provides optimal social welfare. These are the first hardness results for truthful polynomial-time mechanisms for any type of combinatorial auctions, even for deterministic mechanisms. Our approach is based on a novel direct hardness technique that completely skips the notoriously hard step of characterizing truthful mechanisms. The characterization step was the main obstacle for proving impossibility results in algorithmic mechanism design so far.

An Expressive Mechanism for Auctions on the Web

Auctions are widely used on the Web. Applications range from sponsored search to platforms such as eBay. In these and in many other applications the auctions in use are single-/multi-item auctions with unit demand. The main drawback of standard mechanisms for this type of auctions, such as VCG and GSP, is the limited expressiveness that they offer to the bidders. The General Auction Mechanism (GAM) of Aggarwal et al. [2009] takes a first step toward addressing the problem of limited expressiveness by computing a bidder optimal, envy-free outcome for linear utility functions with identical slopes and a single discontinuity per bidder-item pair. We show that in many practical situations this does not suffice to adequately model the preferences of the bidders, and we overcome this problem by presenting the first mechanism for piecewise linear utility functions with nonidentical slopes and multiple discontinuities . Our mechanism runs in polynomial time. Like GAM it is incentive compatible for inputs that fulfill a certain nondegeneracy assumption, but our requirement is more general than the requirement of GAM. For discontinuous utility functions that are nondegenerate as well as for continuous utility functions the outcome of our mechanism is a competitive equilibrium . We also show how our mechanism can be used to compute approximately bidder optimal, envy-free outcomes for a general class of continuous utility functions via piecewise linear approximation. Finally, we prove hardness results for even more expressive settings.

Estimation of Beauty Contest Auctions

Beauty contests are auction mechanisms used to buy or sell differentiated products where the auctioneer does not specify a decision rule to pick the winning bidder. Beauty contests are widely used in procuring welfare-to-work projects, freelance services, selling online ads, real estate transactions, and hiring, dating/marriage decisions. Unlike price-only auctions, beauty contests have no closed-form bidding strategies and suffer from nonmultiplicatively separable unobserved auction heterogeneity, which makes their estimation challenging. To address these challenges, we formulate beauty contests as incomplete information games and present a two-step estimator. A key contribution of our method is its ability to account for common-knowledge auction-specific unobservables using finite unobserved types. We show that unobserved auction types and distributions of bids are nonparametrically identified and recoverable in the first step using a nonparametric Expectation-Maximization (EM)-like algorithm, and that these can then be used in the second step to recover cost distributions. We present an application of our method in the online freelancing context. We find that seller margins in this marketplace are around 15% of the bid, and that not accounting for unobserved heterogeneity can significantly bias cost estimates in this setting. Based on our estimates, we run counterfactual simulations and provide guidelines to managers of freelance firms.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0929 .

Estimation of Beauty Contest Auctions

Beauty contests are auction mechanisms used to buy or sell differentiated products where the auctioneer does not specify a decision rule to pick the winning bidder. Beauty contests are widely used in procuring welfare-to-work projects, freelance services, selling online ads, real estate transactions, and hiring, dating/marriage decisions. Unlike price-only auctions, beauty contests have no closed-form bidding strategies and suffer from nonmultiplicatively separable unobserved auction heterogeneity, which makes their estimation challenging. To address these challenges, we formulate beauty contests as incomplete information games and present a two-step estimator. A key contribution of our method is its ability to account for common-knowledge auction-specific unobservables using finite unobserved types. We show that unobserved auction types and distributions of bids are nonparametrically identified and recoverable in the first step using a nonparametric Expectation-Maximization (EM)-like algorithm, and that ...

Bilevel programming for price-based electricity auctions: a revenue-constrained case

This paper describes the application of bilevel programming to a class of real-life problems in the field of electric power systems. Within the context of electricity markets, market-clearing procedures, i.e., auction models, are used by an independent entity to schedule generation offers and consumption bids as well as to determine market-clearing prices. This paper addresses a mathematically challenging type of auction, denoted as price-based market clearing, wherein, as a distinctive feature, market-clearing prices are explicitly incorporated in the formulation of the optimization process. This paper shows that bilevel programming provides a suitable modeling framework for price-based market clearing. Furthermore, based on practical modeling aspects, an equivalent single-level primal-dual transformation into a mixed-integer program can be implemented. Such transformation relies on the application of duality theory of linear programming. The bilevel programming framework for price-based market clearing is applied to a revenue-constrained auction model similar to those used in several European electricity markets. As a major contribution, bilinear terms associated with both generation revenue constraints and the duality-based transformation are equivalently converted into linear forms with no additional binary variables. Simulation results show the effective performance of the proposed approach and its superiority over current industry practice.

Smarter than others? Conjectures in lowest unique bid auctions.

Research concerning various types of auctions, such as English auctions, Dutch auctions, highest-price sealed-bid auctions, and second-price sealed-bid auctions, is always a topic of considerable interest in interdisciplinary fields. The type of auction, known as a lowest unique bid auction (LUBA), has also attracted significant attention. Various models have been proposed, but they often fail to explain satisfactorily the real bid-distribution characteristics. This paper discusses LUBA bid-distribution characteristics, including the inverted-J shape and the exponential decrease in the upper region. The authors note that this type of distribution, which initially increases and later decreases, cannot be derived from the symmetric Nash equilibrium framework based on perfect information that has previously been used. A novel optimization model based on non-perfect information is presented. The kernel of this model is the premise that agents make decisions to achieve maximum profit based on imaginary information or assumptions regarding the behavior of others.

Green auctions and reduction of information rents in payments for environmental services: an experimental investigation in Sunan County, northwestern China.

Reducing information rents is an important task for government agencies wishing to purchase maximal environmental services with limited budgets. This paper reports on several green auction options for reducing information rents and improving the performance of the “Grain for Green” Payments for environmental services (PES) program implemented in northwestern China. In r experimental auctions and investigations, door-to-door interviews were conducted and bidding envelopes and survey questionnaires were used to determine the offers and the foregone profits of the participants. Three scenarios are analyzed in this paper: a uniform price auction, a discriminatory price auction, and an opportunity-cost system. The results show that compared to the uniform price auction system, the other auction systems can increase the cost-effectiveness of conservation contracting. Competitive bidding can reveal true opportunity costs and can reduce information rents extracted from the government by farmers using private information. The demographics and average bids of these auction types were also analyzed. “Perfect information” in the opportunity-cost offer system has the best performance but is very hard to implement in reality. The results of this research show that the auction is a valuable tool for purchasing conservation contracts in northwestern China, but that in the future, the performance of these auctions should be studied with relaxed model assumptions.

Winner Determination Algorithms for Combinatorial Auctions with Sub-cardinality Constraints

We examine the winner determination problem for combinatorial auctions with sub-cardinality constraints (WDP-SC). In this type of auction, bidders submit bids for packages of items of interest together with a specific number of items they want. All items in a package are equally acceptable, but each bidder wants only the specified number of items in their package and not necessarily all. This type of auction is particularly relevant in cases where bidders are interested in items in close proximity to one another and view items as largely substitutable. We show that WDP-SC is NP-hard. We then develop an integer programming (IP) formulation and two approximation algorithms for solving WDP-SC: one based on simulated annealing (SA) and one based on the Metaheuristic for Randomized Priority Search (Meta-RaPS). We assess the performance of these three methods through computational tests performed on sets of large benchmark problems (ranging from 1000 to 10,000 bids) generated from four different distributions: two developed specifically to simulate proximity concerns, and two others previously used in the literature. IP produced the best solutions for 1000-bid problems, but in many cases SA and Meta-RaPS produced better solutions than IP on larger problems. Both IP and Meta-RaPS appear to be robust solution methods for this problem and consistently produced high-quality solutions across all problem sizes and distributions.

An imperialist competitive algorithm for the winner determination problem in combinatorial auction

Winner Determination problem (WDP) in combinatorial auction is an NP-complete problem. The NP-complete problems are often solved by using heuristic methods and approximation algorithms. This paper presents an imperialist competitive algorithm (ICA) for solving winner determination problem. Combinatorial auction (CA) is an auction that auctioneer considers many goods for sale and the bidder bids on the bundle of items. In this type of auction, the goal is finding winning bids that maximize the auctioneer’s income under the constraint that each item can be allocated to at most one bidder. To demonstrate, the postulated algorithm is applied over various benchmark problems. The ICA offers competitive results and finds good-quality solution in compare to genetic algorithm (GA), Memetic algorithm (MA), Nash equilibrium search approach (NESA) and Tabu search.

Auctioning off Prizes for Agricultural Product Flow under a Policy of Minimum Prices

In this article, we analyze the use of descending clock auctions in the implementation of a minimum pricing policy. This type of auction has been used by the Brazilian government policy of support for agricultural prices. We propose a clock auction model along the lines used by the Brazilian government and derive its main implications. Based on data from auctions already held and implications of the theoretical model, we conclude that the following factors are crucial to minimize the costs of implementing a minimum price policy via auctions: the choice of product to be auctioned, amount auctioned, reserve price (maximum prize), and auction rules.

Core-Selecting Secondary Spectrum Auctions

In a secondary spectrum market, the utility of a secondary user often depends on not only whether it wins, but also which channels it wins. Combinatorial auctions are a natural fit here to allow secondary users to bid for combinations of channels. In this context, the VCG mechanism constitutes a generic auction that uniquely guarantees both truthfulness and efficiency. There also exists related auction design that relaxes efficiency due to perceived complexity issues, and focuses on truthfulness. Starting with new empirical evidences on the complexity issue, we propose to design core-selecting auctions instead, which resolve VCG's vulnerability to collusion and shill bidding, and improve seller revenue. While the VCG type of auctions are unique in guaranteeing both efficiency and truthfulness, we prove that our core-selecting auctions are unique in guaranteeing both efficiency and shill-proofness, and always outperform VCG auctions in terms of seller revenue generated. Employing linear programming and quadratic programming techniques, we design two payment rules for minimizing the incentives of bidders to deviate from truth telling.

“Name your price” – online auctions and reference prices

Purpose – This paper aims to investigate the presence of varying price points on the impact of product valuations in both English and reverse auctions on potential bidders, that is, those not yet engaged in the auction. Internet auctions, both English style and reverse, constitute one of the success stories of digital commerce. Design/methodology/approach – As its method of research, this paper uses an experimental approach to explore the effects of multiple reference prices. Findings – While previous research has done well to show that a lower initial price decreases barriers to entry and can lead to a higher final price in English-style auctions, this research shows that such a strategy may harm potential bidders’ product perceptions due to multiple reference prices. The authors explore situations of multiple reference prices in the context of reverse auctions, where both higher and lower reference prices are shown to be able to increase product valuations. Research limitations/implications – Additional research of a variety of products and using a representative sample would enhance the findings of this paper. Practical implications – The findings show that reference prices have differing impacts, which are dependent upon the goal of either maximizing or minimizing the distance between the initial price and the price consumers are willing to pay in an online auction. Originality/value – The investigation links differing goals created by the type of auction to the potential impact of the reference price. In addition, we explore the effects of multiple reference prices on consumer valuations.

On Vector Formulations of Auction Type Problems with Applications

We propose an extension of the auction model with many divisible commodities for vector price (validity) functions. It can be viewed as a new general equilibrium model for complex systems with active elements. We give its sufficient vector variational inequality formulation and new general existence results for different ordering cones. We suggest vector extensions of network and spatial equilibrium problems with capacity bounds and show they are particular cases of the general auction model. We also give new sufficient conditions for existence of solutions for these problems.

Modelling of Auction Type Markets

We propose several new equilibrium models for auction based markets and show that they admit equivalent variational inequality formulations. This approach simplifies essentially both the derivation of existence and uniqueness results and construction of efficient solution methods. The new models may be considered as alternative to the known perfectly and imperfectly competitive economic equilibrium models.