Predicting bid prices by using machine learning methods

It is well-known that empirical analysis suffers from multicollinearity and high dimensionality. In particular, this is much more severe in an empirical study of itemized bids in highway procurement auctions. To overcome this obstacle, this article employs the regularized linear regression for the estimation of a more precise interval for project winning bids. The approach is put to the test using empirical data of highway procurement auctions in Vermont. In our empirical analysis, we first choose a set of crucial tasks that determine a bidder’s bid amounts by using the random forest variable selection method. Given the selected tasks, project bid forecasting is conducted. We compare our proposed methodology with the least square linear model based on the bias and the standard root mean square error of the bid estimates. There is evidence supporting that the suggested approach provides superior forecasts for an interval of winning bids over the competing model. As far as we know, this article is the first attempt to provide reference bids of highway construction contracts.     

Auctions for social lending: A theoretical analysis

Prosper, today the second largest social lending marketplace with nearly 1.5 million members and $380 million in funded loans, employed an auction mechanism amongst lenders to finance each borrower's loan until 2010. Given that a basic premise of social lending is cheap loans for borrowers, how does the Prosper auction do in terms of the borrower's payment, when lenders are strategic agents with private true interest rates? We first analyze the Prosper auction as a game of complete information and fully characterize its Nash equilibria, and show that the uniform-price Prosper mechanism, while simple, can lead to much larger payments for the borrower than the VCG mechanism. We next compare the Prosper mechanism against the borrower-optimal auction in an incomplete information setting, and conclude by examining the Prosper mechanism when modeled as a dynamic auction, and provide tight bounds on the price for a general class of bidding strategies.     

A two-dimensional problem of revenue maximization

We consider the problem of finding the mechanism that maximizes the revenue of a seller of multiple objects. This problem turns out to be significantly more complex than the case where there is only a single object (which was solved by Myerson, 1981). The analysis is difficult even in the simplest case studied here, where there are two exclusive objects and a single buyer, with valuations uniformly distributed on triangular domains. We show that the optimal mechanisms are piecewise linear with either 2 or 3 pieces, and obtain explicit formulas for most cases of interest.     

The impact of auctions on residential property prices

This study assesses whether the sale method in residential real estate markets – auction versus private treaty – is a determinant of sale price. Utilising a larger and richer dataset than previous research, we test for a price effect in auction sales in Sydney and Christchurch. When self‐selection biases are corrected for, using two‐stage hedonic regression analysis and a matched sampling procedure, we find no significant difference between prices of properties sold at auction to those sold by private treaty. This conflicts with the conclusions of previous research in the Australian and New Zealand housing markets, which have documented a price premium associated with auction sales.     

Measuring Food Product Differentiation by Quality Ratings: A Cross‐Entropy Analysis of Specialty Coffee e‐Auctions

Food quality ratings can be used for product differentiation and strategic marketing. This article develops a differentiation measure based on the cross‐entropy of two distributions for speciality coffees. It examines whether quality ratings achieve their objectives for speciality coffee supply chains. The estimation, using e‐auctions data, indicates that the quality rating is more informative in the Cup of Excellence (CofE) relative to the Q auction. To determine significance, a statistical test for comparing the information measure across different e‐auctions and segments of the quality rating was developed. The significant difference between the two auctions is not a surprise as the auctions trade coffee lots of different volumes and the quality evaluation is more important in the case of the CofE, with its jury of renowned coffee experts. The total cross‐entropy measure of product differentiation shows that the 100‐point quality rating does not carry the same information content and meaning in the two different e‐auctions and their respective supply chains. The cross‐entropy measure of product differentiation is shown to be a good indicator of the information and the value created throughout the speciality food supply chain.     

Your Call: eBay and Demand for the iPhone 4☆

The iPhone 4 was introduced into the UK market on 24^th June 2010 to significant consumer interest. Demand revealed itself exceeding supply through conventional channels, since there was very extensive activity in terms of bidding on eBay auctions for the product. We monitored all UK eBay transactions on the iPhone 4 for six weeks from introduction, with total transactions amounting to around £1.5m. We analyse determinants of winning bids in terms of characteristics of the phone, the seller, and the buyer. Our most notable and novel finding relative to previous studies is a very significant premium over list price being paid in almost all cases, with positive uplift factors including whether the phone was unlocked and whether it could be sold overseas. Demand fell over time, as evidenced by lower achieved prices, but the fall in price was relatively modest. A significant premium of 32GB over 16GB versions is revealed.     

A taxonomy of information technology-enhanced pricing strategies

As a result of evolving technology, opportunities for innovative pricing strategies continuously emerge. The authors provide an updated taxonomy to show how such emerging strategies relate to recent technological advances. Specifically, they cite increased availability of information, enhanced reach, and expanded interactivity as three technological advancements and identify six pricing strategies enhanced by these factors. They also discuss the role of utility, prospect, range, and signaling theories for emerging pricing strategies, along with several applications and managerial implications.     

Procurement auctions with entry of bidders

In procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction. An optimal mechanism, therefore, entails distortions of effort (Laffont and Tirole, 1987). If potential suppliers must sink an entry investment before they can participate in the auction, then decreasing the firms' rent may imply reduced entry. We show that if potential bidders are uninformed before entry, commitment to a plain, nondistortive auction is optimal. In contrast, if potential bidders learn all their private information before entry, the optimal mechanism entails the same distortions as in Laffont and Tirole's static model.     

Revealing information in auctions: the allocation effect

When there are two bidders, releasing independent information in an English auction with private values makes the seller worse off. However, this is no longer true with more bidders: when there is enough competition, revelation benefits the auctioneer. In three examples the dividing case is shown to be three bidders. This allocation effect applies to other standard auctions and parallels the bundling decision in a multi-unit auction. I would like to thank Jeremy Bulow, Willie Fuchs, Paul Klemperer, Rob McMillan, Phil Reny, Jeff Zwiebel and especially Andy Skrzypacz. I also grateful to two referees and an Associate Editor for a number of helpful comments.     

Towards a complete real-time electricity market design

The general design for the real-time electricity market presented in this paper optimizes and prices both real and reactive power simultaneously in an AC setting, where all assets—generation, load and transmission—are allowed to bid and are financially settled at the locational price times energy consumed or produced. The result is that transmission lines are compensated for both capacity and admittance, providing incentives for efficient operation of transmission-related assets such as FACTS devices, if price-taking behavior is assumed. Losses are incorporated into the design and become an operating cost for transmission. The market design is shown to be revenue neutral and, under some assumptions, nonconfiscatory.