Cost overrun and auction format in small size public works

We study the effect on cost overruns of two different auction formats, the first price sealed bid and the average bid, conditional on whether entry is open or restricted. The first price format awards the contract to the lowest bid, while the average bid format awards the contract to the bid closest to the average of all the bids. This latter format is supposed to prevent an unreliable low bidder from winning the auction; as a consequence cost overruns should be lower under the average bid than under the first price format. We test this hypothesis with a panel data set of auctions held in the Italian Veneto region between 2004 and 2006, including small size public projects in sectors such as road works and building maintenance. We find that cost overruns are lower under the average bid format, but only when the entry is restricted. We then speculate on possible explanations for this result.     

A comparison of first price multi-object auctions

We compare simultaneous multi-object English-type ascending price auctions with first price sealed bid auctions in private values environments with multi-object demands. Special attention is paid to the effect of closing rules on ascending auctions’ outcomes. We find that simultaneous ascending auctions with the soft closing rule are the most efficient, while the sealed bid auctions generate the highest revenue. Ascending auctions with the hard closing rule display a significant amount of late bidding, resulting in the lowest among the three institutions revenue and efficiency.

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Investment Incentives in Procurement Auctions

This paper investigates firms' incentives to invest in cost reduction in the first price sealed bid auction, a format largely used for procurement. Two central features of the model are that we allow firms to be heterogeneous and that investment is observable. We find that firms will tend to underinvest in cost reduction because they anticipate fiercer head-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants and that this is socially inefficient. These results have implications for market design when investment is important.     

Second chance offers in auctions

This paper examines situations in which a seller might make a second chance (take-it-or-leave-it) offer to a non-winning bidder at a price equal to their bid at auction. This study is motivated by the take-it-or-leave-it second chance offer rules used by eBay and a number of state procurement agencies. Equilibrium bidder behavior is determined for IPV sealed bid first price, second price, English, and Vickrey auctions when a second chance offer will be made with an exogenous probability $p$ . In all but the Vickrey auction (which elicits the dominant strategy of bidding one’s value) equilibrium bids are lower than if there were no possibility of a second chance offer and higher than if a second chance offer will be made for certain. Further, the possibility of a second chance offer erodes the strategic equivalence between second price bids and English auction drop out levels. If bidders are risk averse (with CRRA preferences), this difference leads to expected revenue dominance of the second price over the English auction, both of which dominate the Vickrey auction. The first price auction is also shown to revenue dominate the Vickrey auction, and moreover, numerical results and intuition from existing literature suggest that the first price auction revenue dominates the second price auction.     

Framing the first-price auction

We revisit the result that, in laboratory independent private values auction, the first-price sealed bid and descending clock (or Dutch) implementations are not isomorphic. We investigate the hypothesis that this arises from framing and presentation effects. Our design focuses on a careful construction of subject interfaces that present the two environments as similarly as possible. Our sessions also consist of more auction periods to test whether any initial framing effects subsequently decrease over time. We find the difference between the implementations persists. To further investigate the difference, we report on an intermediate implementation which operates like the Dutch auction, but in which the clock continues to tick to the lowest price without informing bidders when others have bid on the object. JEL Classification D44, C90 Deceased     

Imperfect Competition in Auction Designs

We study the competition between two owners of identical goods who wish to sell them to a pool of potential buyers. The sellers compete simultaneously setting reserve prices for their second price sealed bid auctions. Upon observing the set reserve prices, the buyers decide simultaneously in which auction to bid. We show that this game has (at least) one equilibrium and that all equilibria are inefficient: reserve prices are not driven to zero (cost). We also discuss where and why the parallel between optimal auction design and optimal pricing in the case of monopoly breaks down for oligopoly.     

Sealed bid auctions with ambiguity: Theory and experiments

This study presents a laboratory experiment of the first and second price sealed bid auctions with independent private values, where the distribution of bidder valuations may be unknown. In our experimental setting, in first price auctions, bids are lower with the presence of ambiguity. This result is consistent with ambiguity loving in a model that allows for different ambiguity attitudes. We also find that the first price auction generates significantly higher revenue than the second price auction with and without ambiguity.     

Information acquisition in auctions: Sealed bids vs. open bids

This paper studies the incentives of a bidder to acquire information in an auction when her information acquisition decision is observed by the other bidders before bidding. Our results show that the sealed bid (second price) auction may induce more information acquisition about a common component of the value than the open (English) auction but less about the private component of the value. Moreover, we show that more information about the private value and less information about the common value may improve efficiency and revenue. Consequently, our results suggest new arguments in favor of the open auction.     

Comparing competition and collusion: a numerical approach

Summary. Collusion is a serious problem in many procurement auctions. In this research, I study a model of first price sealed bid procurement auctions with asymmetric bidders. I demonstrate that the equilibrium to the model is unique and describe three algorithms that can be used to compute the inverse equilibrium bid functions. I then use the computational algorithms to compare competitive and collusive bidding. The algorithms are useful for structural estimation of auction models and for assessing the damages from bid-rigging. Received: January 14, 2000; revised version: February 28, 2001     

Sealed bid auctions with uncertainty averse bidders

Summary. Traditional analysis of auctions assumes that each bidder's beliefs about opponents' valuations are represented by a probability measure. Motivated by experimental findings such as the Ellsberg Paradox, this paper examines the consequences of relaxing this assumption in the first and second price sealed bid auctions with independent private values. The multiple priors model of Gilboa and Schmeidler [Journal of Mathematical Economics, 18 (1989), 141–153] is adopted specifically to represent the bidders' (and the auctioneer's) preferences. The unique equilibrium bidding strategy in the first price auction is derived. Moreover, under an interesting parametric specialization of the model, it is shown that the first price auction Pareto dominates the second price auction. Received: December 15, 1995; revised version: February 19, 1997     

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.     

Time is money: The effect of clock speed on seller’s revenue in Dutch auctions

We study the role of timing in auctions under the premise that time is a valuable resource. When one object is for sale, Dutch and first-price sealed bid auctions are strategically equivalent in standard models, and therefore, they should yield the same revenue for the auctioneer. We study Dutch and first-price sealed bid auctions in the laboratory, with a specific emphasis on the speed of the clock in the Dutch auction. At fast clock speeds, revenue in the Dutch auction is significantly lower than it is in the sealed bid auction. When the clock is sufficiently slow, however, revenue in the Dutch auction is higher than the revenue in the sealed bid auction. We develop and test a simple model of auctions with impatient bidders that is consistent with these laboratory findings.

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Breaking Collusion in Auctions through Speculation: An Experiment on CO2 Emission Permit Markets

The European Emission Trading Scheme (EU‐ETS) has chosen to adopt an auctioning procedure to initially allocate CO₂ emission permits. Free allocation of permits will become an exception for the third phase (2013–2020) and most firms will have to buy all their permits on the market or via auctions. The ability of bidders to collude is a key concern about the design of the auction format. To counter collusion, the auction can be open to bidders without compliance obligations (speculators). This paper aims at studying experimentally speculation as a collusion‐breaking device in two different auction mechanisms: the uniform‐price sealed‐bid auction and the ascending clock auction. Our results suggest that a uniform sealed‐bid auction open to speculators should be chosen from a revenue maximization point of view. In this mechanism, compliance agents adopt an aggressive strategy toward speculators. This strategy significantly increases the seller's revenue, compared to the more collusive clock auction. In the latter, on the contrary, bidders accommodate speculators, letting them buy permits in the auction and buying their necessary permits on the secondary market. However, as opening the auction to speculators deteriorates efficiency, the regulator faces a trade‐off between these two objectives.     

评标准则对建筑业利润率的影响研究——基于多智能体仿真

目前关于低价中标对建筑业的影响存在积极与负面两方面的看法,一方认为建筑企业为了生存不得不作出＂最低价抢标＂的抉择,因而产生质量纠纷、影响企业发展的后果。一方认为发达国家多在实践中采用低价中标方式,所有采用过的评标办法在实施中总会出现一些自身无法解决的弊端,实施最低价中标评标办法较之其它办法更有利于实现真正的竞标。理论各持一词。因而研究从个体企业行为角度出发,根据多智能体理论,使用Netlogo建模平台,建立中国建筑业的交易行为互动流程,模拟运行建筑产业创新行为,通过建筑业的虚拟仿真竞争互动,观察并分析论证了建筑业不同评标准则对产业收益存在不同的影响,低价中标方法损害产业收益,而偏好创新中标方法有利于产业收益提高。     

Bidding ‘as if’ risk neutral in experimental first price auctions without information feedback

Experimental research on first price sealed bid auctions has usually involved repeated settings with information feedback on winning bids and payoffs after each auction round. Relative to the risk neutral Nash equilibrium, significantly higher bidding has been reported. The present paper reports the results of experimental first price auctions with n=7 where feedback on payoffs and winning bids is withheld. Under these conditions, average bidding is below the risk neutral Nash equilibrium prediction but converges to it with repetition.

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THE SECOND‐PRICE AUCTION SOLVES KING SOLOMON'S DILEMMA*

The planner wants to give k identical, indivisible objects to the top k valuation agents at zero costs. Each agent knows her own valuation of the object and whether it is among the top k. Modify the (k+ 1)st‐price sealed‐bid auction by introducing a small participation fee and the option not to participate in it. This simple mechanism implements the desired outcome in iteratively undominated strategies. Moreover, no pair of agents can profitably deviate from the equilibrium by coordinating their strategies or bribing each other.     

Strategic Jump Bidding in English Auctions

This paper solves for equilibria of sequential bid (or English) auctions with affiliated values when jump bidding strategies may be employed to intimidate one's opponents. In these equilibria, jump bids serve as correlating devices which select asymmetric bidding functions to be played subsequently. Each possibility of jump bidding provides a Pareto improvement for the bidders from the symmetric equilibrium of a sealed bid, second-price auction. The expanded set of equilibria can approximate either first- or second-price outcomes and produce exactly the set of expected prices between those two bounds. These results contrast with standard conclusions that equate English and second-price auctions.     

All equilibria of the multi-unit Vickrey auction

This paper completely characterizes the set of equilibria of the Vickrey auction for multiple identical units when buyers have non-increasing marginal valuations and there are at least three potential buyers. There are two types of equilibria: In the first class of equilibria there are positive bids below the maximum valuation. In this class, above a threshold value all bidders bid truthfully on all units. One of the bidders bids at the threshold for any unit for which his valuation is below the threshold; the other bidders bid zero in this range. In the second class of equilibria there are as many bids at or above the maximum valuation as there are units. The allocation of these bids is arbitrary across bidders. All the remaining bids equal zero. With any positive reserve price equilibrium becomes unique: Bidders bid truthfully on all units for which their valuation exceeds the reserve price.     

The high/low divide: Self-selection by values in auction choice

Most prior theoretical and experimental work involving auction choice has assumed bidders find out their value after making a choice of which auction to enter. We examine whether or not bidders knowing their value prior to making a choice of which among multiple alternative auction formats to enter impacts their choice decision and/or the outcome of the auctions. The results show a strong impact on auction choice. Subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often. The number of bidders in each auction, revenue, efficiency and average bidder surplus all end up equalized.     

Ascending price Vickrey auctions for general valuations

Ascending price auctions involving a single price path and buyers paying their final bid price cannot achieve the Vickrey-Clarke-Groves (VCG) outcome in the combinatorial auctions setting. Using a notion called universal competitive equilibrium prices, shown to be necessary and sufficient to achieve the VCG outcome using ascending price auctions, we define a class of ascending price auctions in which buyers bid on a single price path. Truthful bidding by buyers is an ex post Nash equilibrium in such auctions. By giving discounts to buyers from the final price, the VCG outcome is achieved for general valuations.