Optimal auctions and information disclosure

We characterise properties of optimal auctions if the seller may disclose information about the quality of the object for sale. We show that the seller maximizes his expected revenue by revelation of all information to all bidders and implementing a second price auction with appropriate reservation price.     

On the lowest-winning-bid and the highest-losing-bid auctions

Theoretical models of multi-unit, uniform-price auctions assume that the price is given by the highest losing bid. In practice, however, the price is usually given by the lowest winning bid. We derive the equilibrium bidding function of the lowest-winning-bid auction when there are k objects for sale and n bidders with unit demand, and prove that it converges to the bidding function of the highest-losing-bid auction if and only if the number of losers n−k gets large. When the number of losers grows large, the bidding functions converge at a linear rate and the prices in the two auctions converge in probability to the expected value of an object to the marginal winner.     

Selling goods of unknown quality: forward versus spot auctions

We consider an environment where the sale can take place so early that both the seller and potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to offer the good for sale before or after this uncertainty is resolved, namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting expected revenues. We also consider the revenue implications of insurance in forward auctions.     

Common value auctions with independent types

In this paper I consider a common value model, with independent types, where the ex-post value of the good is influenced by the bidders' information at the auction stage. The seller cannot fully extract the surplus. In a symmetric model the optimal mechanism can be implemented through first price, second price, or English auctions; but not through a Dutch auction. Other properties of the optimal auctions are that the seller's reservation price is endogenous, and that in sealed bid auctions the price may exceed the value of the object (winner's curse).     

Wars of attrition and all-pay auctions with stochastic competition

We extend the war of attrition and all-pay auction analysis of Krishna and Morgan (1997) to a stochastic competition setting. We determine the existence of equilibrium bidding strategies and discuss the potential shape of these strategies. Results for the war of attrition contrast with the characterization of the bidding equilibrium strategies in the first-price all-pay auction as well as the winner-pay auctions. Furthermore we investigate the expected revenue comparisons among the war of attrition, the all-pay auction and the winner-pay auctions and discuss the linkage principle as well. Our findings are applicable to future works on contests and charity auctions.     

Anticipation of Auction Fever: Entry Decision,Reserve Price and the Choice of Auction Design

This paper analyzes the entry decision of rational bidders who expect to experience auction fever in English auctions. It shows that nonparticipation decision reduces seller's expected profit and this effect may outweigh the positive effect of the auction fever. We analyze the choice between English and second‐price sealed‐bid auctions and the optimal reserve price in English auctions. We show that it might be optimal for the seller to set a reserve price below her own valuation of the object. Finally, we show that the order in which bidders place their bids matters and the first bidder always has an advantage. Copyright © 2011 John Wiley & Sons, Ltd.     

The FCC Spectrum Auctions: An Early Assessment

This paper analyzes six spectrum auctions conducted by the Federal Communications Commission from July 1994 to May 1996. These auctions were simultaneous multiple-round auctions in which collections of licenses were auctioned simultaneously. This auction form proved remarkably successful. Similar items sold for similar prices, and bidders successfully formed efficient aggregations of licenses. Bidding behavior differed substantially in the auctions. The extent of bidder competition and price uncertainty played an important role in determining behavior. Bidding credits and installment payments also played a major role in several of the auctions.     

Information acquisition and/or bid preparation: A structural analysis of entry and bidding in timber sale auctions

Recently, several auction models with entry have been proposed: in one model ( and ), bidders are assumed to draw their private values after they decide to enter. In another model ( and ), bidders are assumed to learn their values before their entry decisions are made. The entry cost in the latter model can be interpreted as bid preparation cost, while the entry cost in the former model consists of both costs from information acquisition and bid preparation. Moreover, these two models have different implications for important policies, e.g., the optimal reserve price. In this paper we provide a unified structural framework where the two models can be estimated and distinguished using the Bayesian method. We apply our method to analyze Michigan timber sale auctions.     

AUCTIONS: AN INTRODUCTION

Abstract. This is a detailed introduction to auction theory. It begins with a simple analysis of standard auctions and then uses a strikingly simple general solution of symmetric private values auctions to prove the payoff equivalence of many auction rules. The basic framework is then modified to admit risk aversion, multi-unit and repeated auctions as well as collusion. Then follows an introduction to optimal auctions, with and without stochastic entry, and to common value auctions and the winner's curse problem. The survey closes with a sample of applications, from the regulation of natural monopolies to price competition in oligopoly and the government securities market.     

Detection of collusion in government procurement auctions

Research on bidder collusion in procurement auctions is reasonably successful in unveiling the mechanisms of collusion among the bidders. But it is relatively weak in forwarding effective practical methods of collusion detection before the winner is declared, because they presuppose the knowledge of collusion in specific auctions. Past studies, however, point out the need for working with bid price-to-reserve price ratios rather than bid prices or winning bid prices, to be free from the problem of heteroscedasticity. They also draw an important inference that the set of collusive data are significantly different from the set of competitive data. On the basis of these basic facts, the current paper outlines a seven-step approach to collusion detection. The approach makes rudimentary statistical analysis of bid price-to-reserve price ratios for all the bidders. The analysis comprises tests of equality of means, medians and variance and tests of skewness, autocorrelation and normality of the ratios. It divides the ratios into two significantly different clusters. The cluster with the higher mean and variance values of the ratios corresponds to collusive bidding with the other cluster corresponding to competitive bidding. The paper proposes the construction of a process control chart to detect occurrence of collusion in an auction immediately after the price bids are opened. The approach is illustrated by applying it to data from procurement auctions for construction projects in a State Department of the Republic of India.     

The Auction Price of Apartments in Moscow: Hedonic Estimation in Disequilibrium1

The purpose of this paper is to see how economic factors determine prices in the previously communist countries undergoing privatization. This does not concern the auctions of big state enterprises where the prices are found to be rigged. In this paper we estimate hedonic price functions based on a unique data set on auction prices of apartments in Moscow. We collected the data ourselves by attending the auctions and gathered data on the characteristics. We estimated the hedonic equations using a disequilibrium approach because no equilibrium prices were observed for large number of apartments that were withdrawn from the auction. We found that, as the privatization of residential housing was carried out, the hedonic price equations fit the data remarkably well.     

经济增长推动房地产市场发展的实证研究——以上海为例

租金、售价等价格指标及其周期性波动,常用于衡量房地产市场的发展程度。在运用三部门模型分析区域经济增长如何影响区域房地产市场发展的基础上,提出上海经济增长推高房地产整体市场和住宅子市场的租金、售价的假设。选取5项指标,利用上海1998—2012年的城市统计年鉴数据,通过格兰杰因果检验方法进行实证检验。结果表明,上海整体房地产市场和住宅子市场的租金增长,均以经济增长为格兰杰因;两个市场的售价与经济增长无法体现因果关系。因此,租金是比价格更有效、更稳定的市场指标。     

Reputation in Auctions: Theory, and Evidence from eBay

Employing a procedure suggested by a simple theoretical model of auctions in which bidders and sellers have observable and heterogenous reputations for default, we examine the effect of reputation on price in a data set drawn from the online auction site eBay. Our main empirical result is that seller's, but not bidder's, reputation has an economically and statistically significant effect on price.     

Indirect inference in structural econometric models

This paper considers parametric inference in a wide range of structural econometric models. It illustrates how the indirect inference principle can be used in the inference of these models. Specifically, we show that an ordinary least squares (OLS) estimation can be used as an auxiliary model, which leads to a method that is similar in spirit to a two-stage least squares (2SLS) estimator. Monte Carlo studies and an empirical analysis of timber sale auctions held in Oregon illustrate the usefulness and feasibility of our approach.     

Trade spends and profitability of promotions

This paper examines the prevalent mechanism of financing advertising and temporary price reductions through trade spend budgets. A manufacturer and a retailer interact for a number of periods with a plan to hold a sale in the last period. During the nonpromotional periods, the retailer accumulates the funds in this budget in proportion to the size of its order from the manufacturer. In the sale period, the budget is used to finance the discount offered by the manufacturer and advertising. I find that the manufacturer drops its price in the sale period to increase the profitability of promotions for the retailer. To be able to sell more units during the sale period, the retailer needs to accumulate a larger trade spend. This is accomplished by setting a smaller mark-up over the manufacturer's price in the regular periods. The manufacturer takes advantage of the retailer's softer pricing by increasing its regular wholesale price. As long as such trade spends are used to finance advertising, the total profits of each firm increase. Using fixed trade spends, where the manufacturer allocates a fixed amount for the retailer, does not lead to an increase in profits.     

对我国产品质量法中“货值金额”计算的思考

在司法和执法实践中,如何运用产品质量法计算“货值金额”是一个有争议的问题。对于已销售的产品,货值金额应该按实际销售的价格计算;制造、储存、运输和未销售的产品的价值,应该按照标价或者已经查清的侵权产品的实际销售平均价格计算;没有标价或者无法查清其实际销售价格的,按照市场中间价格计算。     

Auctions with endogenous participation

We study endogenous-participation auctions where bidders only know the number of potential participants. After seeing their values for the object, potential participants decide whether or not to enter the auction. They may not want to enter the auction since they have to pay participation costs. We characterize equilibrium bidding strategies and entry decisions for both first- and second-price sealed-bid auctions when participation is endogenous. We show that there is a pure strategy entry equilibrium where only bidders with values greater than a certain cut-off point actually bid. In this context, both types of auctions generate the same expected revenue. We also show that, contrary to the predictions of the fixed number of bidders literature, the seller's expected revenue may decrease when the number of potential participants increases. In addition, we show that it is optimal for the seller to charge an entry fee, which contrasts with results from the existing literature on auctions with entry. As in the fixed-n literature, we show that first-price auctions generate more expected revenue than second-price auctions when buyers are risk-averse. Finally, we characterize the optimal auction – the auction that maximizes the seller's expected revenue – by using a direct revelation mechanism. The optimal auction involves a reserve price larger than the optimal reserve price in the fixed-n literature. The winner's payment is the second highest bid less the participation cost and losers receive a subsidy equal to the participation cost. Received: 17 August 1998 / 21 September 1999     

Maximizing bidder surplus in simultaneous online art auctions via dynamic forecasting

This paper presents a novel intelligent bidding system, called SOABER (Simultaneous Online Auction BiddER), which monitors simultaneous online auctions of high-value fine art items. It supports decision-making by maximizing bidders’ surpluses and their chances of winning an auction. One key element of the system is a dynamic forecasting model, which incorporates information about the speed of an auction’s price movement, as well as the level of competition both within and across auctions. Other elements include a wallet estimator, which gauges the bidders’ willingness to pay, and a bid strategizer, which embeds the forecasting model into a fully automated decision system. We illustrate the performance of our intelligent bidding system on an authentic dataset of online art auctions for Indian contemporary art. We compare our system with several simpler ad-hoc approaches, and find it to be more effective in terms of both the extracted surplus and the resulting winning percentage.     

Electronic reverse auction configuration and its impact on buyer price and supplier perceptions of opportunism: A laboratory experiment

Buying organizations are increasingly using electronic reverse auctions (eRAs) to source from suppliers. However, recent quasi-experimental and field research has suggested that the use of this sourcing technique can create perceptions of opportunism among participating suppliers. Yet from the buyer's perspective, online reverse auctions can yield lower purchase prices. Given the many ways in which to configure on-line auctions, we extend existing research by using a laboratory experiment to investigate how different reverse auction configurations jointly influence bid price and suppliers’ perceptions of buyer opportunism.Our findings suggest that supplier bid prices decrease over time as they participate in more eRAs, regardless of the configuration of auction parameters. However, the combination of rank (versus price) visibility, high (versus low) supplier need to win a contract, and six (versus three) competitors was significantly more effective than other combinations of variables in immediately reducing bid prices. The data also indicated that when suppliers’ bids dropped substantially across auctions, their perceptions of opportunism increased. Notably, auction parameter combinations such as price visibility, three competitors, and low need for the contract yielded comparably low bids by the third auction, without any increases in perceived buyer opportunism.     

On the uniqueness of optimal prices set by monopolistic sellers

This paper considers price determination by monopolistic sellers who know the distribution of valuations among the potential buyers. We derive a novel condition under which the optimal price set by the monopolist is unique. In many settings, this condition is easy to interpret, and it is valid for a very wide range of distributions of valuations. The results carry over to the optimal minimum price in independent private value auctions. In addition, they can be fruitfully applied in the analysis of quantity discount price policies.