Sequential procurement auctions with risk-averse suppliers

We compare two procurement mechanisms, bundling and unbundling, in a two-stage auction model with risk-averse suppliers. The mechanisms differ in that the two tasks of investment and production are procured through a single auction or two sequential auctions. Suppliers’ production costs are affected by two risk factors, aggregate risk and idiosyncratic risk, as well as by the cost-reducing investment. We show that the bundling mechanism is optimal for a buyer and socially desirable if the aggregate risk is below certain thresholds. The result may not hold true for idiosyncratic risk.     

多属性拍卖与研发竞赛的激励效应比较

采购方向两个潜在的供应商之一采购某种需要研发的创新性技术或产品,并采用多属性拍卖机制或研发竞赛机制来确定哪一个供应商最终能赢得合约。假设供应商是同质的和风险中性的、研发成本具有随机性,且采购方和供应商之间在研发成本上信息不对称,分别研究多属性拍卖机制和研发竞赛机制中供应商的质量决策,比较这两种机制的创新激励效应。结果发现:多属性拍卖机制中,理性的供应商都不会进行研发和参与投标;研发竞赛中奖励金额必须要足够大才能激发供应商的研发与竞赛参与意愿,此时研发竞赛机制要优于多属性拍卖机制。     

Uniqueness in symmetric first-price auctions with affiliation

The first-price auction has a unique monotone pure strategy equilibrium when there are n symmetric risk-averse bidders having affiliated types and interdependent values.     

Existence and uniqueness of stochastic equilibrium in a simple macro model

This paper demonstrates that even the simplest rational expectations macro model may be plagued by nonexistent or multiple equilibria. The reason for these problems is the postulated existence of risk-averse behavior on the part of labor suppliers and purchasers of durable commodities. This risk-averse behavior introduces the price forecast variance into the behavioral parameters of the model, thus leading to a simultaneous nonlinear system.     

An optimal auction with correlated values and risk aversion

We consider an auction setting where the buyers are risk averse with correlated private valuations (CARA preferences, binary types), and characterize the optimal mechanism for a risk-neutral seller. We show that the optimal auction extracts all buyer surplus whenever the correlation is sufficiently strong (greater than 1/3 in absolute value), no matter how risk averse the buyers are. In contrast, we note that a sufficiently risk-averse seller would not use a full rent extracting mechanism for any positive correlation of the valuations even if the buyers were risk neutral.     

考虑固定收益率的采购拍卖投标策略研究

本文分析了单物品多因素采购拍卖中的供应商投标问题,在考虑供应商存在固定收益率的前提下,建立了相应的多因素拍卖中存在固定收益率的投标策略模型。本模型在Che建立的多因素拍卖打分函数模型的基础上,引入Lorentziadis考虑的固定收益率。分析表明,模型中存在3种类型的供应商,且各类供应商具有相应的投标策略。同时,分析了不同类型的供应商的投标策略与其市场竞争力之间的相互关系。     

Evaluation of a Truthful Revelation Auction in the Context of Energy Markets with Nonconcave Benefits

We describe a Vickrey-Clarke-Groves auction for supply and demand bidding in the face of market power and nonconcave benefits in which bidders are motivated to bid truthfully, and evaluate its use for power and gas pipeline capacity auctions. The auction efficiently allocate resources if firms maximize profit. Simulations, including an application to the PJM power market, illustrate the procedure. However, the auction has several undesirable properties. It risks being revenue deficient, can be gamed by cooperating suppliers and consumers, and is subject to the information revelation and bid-taker cheating concerns that make single item Vickrey auctions rare.     

Selection effects in auctions for monopoly rights

We demonstrate that auctioning market licenses may result in higher market prices than assigning them via more random allocation mechanisms. When future market profit is uncertain, winning an auction is like winning a lottery ticket. If firms differ in risk attitudes, auctions select the least risk-averse firm, which, in turn, set a higher price (or a higher quantity, in case quantity is the decision variable) in the marketplace than an average firm.     

Competition for procurement shares

We propose a new procurement procedure that allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are the following: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows variations in the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even while accomplishing affirmative action goals, procurement expenditures might be lower than under a standard auction format.     

Optimal procurement strategies by reverse auctions with stochastic demand

This paper studies a dynamic procurement problem by reverse auction for a retailer with stochastic demand. In each period, the retailer based on his inventory needs to determine a payment function (a procurement contract) according to which a number of potential suppliers compete in the reverse auction. We show the existence of the retailer's optimal payment function and find that the suppliers' Bayesian–Nash equilibrium bidding strategy is similar to the base-stock policy in the traditional multi-period inventory control problems when the retailer incurs no fixed setup cost, while similar to the (s, S) policy when the retailer incurs a fixed setup cost. This strategy is for the suppliers, instead of for the retailer, depends on the supplier's marginal cost and so is stochastic for the retailer. Thus, this paper extends well beyond traditional procurement environments studied so far in the inventory control literature.     

Multi-Dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules

System operators in the electricity industry purchase reserve capacity in a procurement auction in which suppliers offer two-part bids, one part for making capacity available and another part for supplying incremental energy when called. Key ingredients of an efficient auction design are the scoring rule for comparing bids, and the settlement rule for paying accepted bids. We use the principle of incentive compatibility to establish that very simple rules suffice. In particular, the scoring rule uses only the capacity part of the bid, and energy supplies are paid the spot price. This is the design adopted in California.     

Temporary partnership and subcontracting: Pre- vs. post- award outsourcing in public procurement

We empirically compare bids (i.e. prices) from temporary partnerships (TPs), that outsource part of the contract before the auction, and firms that outsource afterwards. Using a comprehensive dataset on procurement auctions for public works in Valle d’Aosta (Italy), we find that the timing of outsourcing affects the bids and the probability of winning the auction. Specifically, TPs bid closer to the payoff maximizing offer and are more likely to win. Hence, the price paid by the public buyer is lower. These results are supported by a simple theoretical setting showing that, by pre-committing to a TP, suppliers have a lower risk of being “held up” by subcontractors than firms that outsource part of the work after the bidding phase. Our results show the advantage for TPs of freely choosing partners, size and boundaries before the auction, highlighting their potential in fostering the effective participation in public procurement procedures of Small and Medium-sized Enterprises (SMEs).     

Optimal auctions with asymmetrically informed bidders

Summary. The paper analyzes a problem of optimal auction design when the seller faces asymmetrically informed bidders. Specifically, we consider a continuum of risk-neutral uninformed bidders taking part into the auction along with n risk-averse informed bidders. The contribution of the paper is threefold. First, we fully characterize the optimal auction in this non standard environment and in a very general set-up. We find that when informed bidders reveal “bad news” about the value of the good, the seller optimally awards the object to the uninformed bidders. Secondly, we show that the seller is better off in presence of uninformed bidders because this allows to lower the informational rents paid to the informed bidders. Last, we find that, with bi-lateral risk neutrality, the seller always awards the good to the uninformed bidders thereby keeping all the surplus.Received: 22 October 2004, Revised: 21 April 2005, JEL Classification Numbers: D44, D82.We are very grateful to two anonymous referees, Jacques Crémer, Patrick François, Angel Hernando-Veciana and seminar participants at the 2004 SCSE conference (Quebec, Canada) for their valuable comments. Moez Bennouri acknowledges the financial support by the Initiative of the New Economy (INE) program of SSHRC (Canada).     

Charitable asymmetric bidders

Recent papers show that the all‐pay auction is better at raising money for charity than the first‐price auction with symmetric bidders under incomplete information. Yet, this result is lost with sufficiently asymmetric bidders under complete information. In this paper, we consider a framework on charity auctions with asymmetric bidders under some incomplete information. We find that the all‐pay auction still raises more money than the first‐price auction. Thus, the all‐pay auction should be seriously considered when one wants to organize a charity auction.     

Premium auctions and risk preferences: An experimental study

In premium auctions, the highest losing bidder receives a reward from the seller. This paper studies the private value English premium auction (EPA) for different risk attitudes of bidders. We explicitly derive the symmetric equilibrium for bidders with CARA utilities and conduct an experimental study to test the theoretical predictions. In our experiment, subjects are sorted into risk-averse and risk-loving groups. We find that revenues in the EPA are significantly higher when bidders are risk loving rather than risk averse. These results are partly consistent with theory and confirm the general view that bidders' risk preferences constitute an important factor that affects bidding behavior and consequently also the seller's expected revenue. However, individual subjects rarely follow the equilibrium strategy and revenue in our experiment is lower than in the symmetric equilibrium.     

THE OPTIMAL LISTING STRATEGIES IN ONLINE AUCTIONS

This article proposes a unified framework to completely characterize the seller's optimal listing strategy in the online auction as a function of her rate of time impatience. Specifically, the fixed‐price listing, the regular auction, and the buy‐it‐now (BIN) auction are each a solution of the seller's single optimization problem under different values of the rate of intertemporal discount: The perfectly patient seller adopts the regular auction, the sellers with a medium range of time impatience adopt the BIN auction, and the most impatient of sellers adopt the fixed‐price listing. Moreover, under mild conditions, the reverse price is inversely related to the value of the seller's discount factor, either within or across formats. This in turn implies that the posted price in the fixed‐price sale is greater than the reserve price of the BIN auction, followed by that of the regular auction. These predictions offer clear empirical implications.     

Auction Design for the Allocation of Emission Permits in the Presence of Market Power

To the extent that emission permits have been allocated using market mechanisms, this has been done using a sealed-bid auction design, typically with discriminatory prices. However, several authors have recommended the ascending auction format. Basically, two competing ascending auction designs have been suggested, the standard ascending auction (with clock or demand schedules), or an alternative ascending-clock implementation of Vickrey-pricing. The latter design was introduced as a response to problems of bid shading under the sealed-bid and the standard ascending auction format. The purpose of this paper is to investigate the allocation of permits under these two alternative mechanisms. The auction process and the resulting market outcome in the presence of oligopolistic competition are simulated. In this setting, it is not obvious that bid shading is the optimal strategy under the standard design, nor is it obvious that sincere bidding is the optimal strategy under the alternative ascending auction design. The alternative auction format makes it less costly to pursue a strategy to increase market shares through the acquisition of emission permits, thus increasing the competitor's costs, leading to overbidding as the optimal strategy.     

EXPERIMENTAL EVIDENCE ON ENGLISH AUCTIONS: ORAL OUTCRY VERSUS CLOCK

This paper tests experimentally, in a common value setting, the equivalence between the Japanese English auction (or clock auction) and an oral outcry auction where bidders are allowed to call their own bids. We find that (i) bidding behaviour is different in each type of auction, but also that (ii) this difference in bidding behaviour does not affect significantly the auction prices. This lends some support to the equivalence between these two types of auction. The winner's curse is present: overbidding led to higher than expected prices (under Nash bidding strategies) in both types of auction. Although interesting and encouraging, the results clearly indicate that further research is necessary, particularly with a modified experimental design.     

Risk and regret aversions on optimal bank interest margin under capital regulation

This paper examines the bank's optimal loan rate (and thus the bank's interest margin) under more stringent capital regulation when the bank is not only risk-averse but also regret-averse. Risk-averse preferences are characterized by an option-based utility function that includes disutility from the dislike of bank equity risk. Regret-averse preferences feature an option-based utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that an increase in bank capital requirement results in an increased margin under risk aversion dominating regret aversion, whereas it results in a reduced margin under regret aversion dominating risk aversion. The former holds when risk aversion domination stems from increasing risk-averse preference, but not from decreasing regret-averse preference, while the latter holds when regret aversion domination results from either decreasing risk-averse or increasing regret-averse preference. Risk aversion, as such, makes the bank more prudent and less prone to risk-taking, while regret aversion, as such, makes the bank less prudent and more prone to risk-taking.     

Nature of Competition and New Technology Adoption

The incentives to adopt cost‐reducing technology by firms in a horizontally‐differentiated duopoly are analysed in the present paper. Cost reduction depends on the ‘quality’ of the ‘new technology’. A firm has to procure such technology in a ‘scoring auction’. When the quality offered by the suppliers of this technology lies in the interior of the feasible range, both firms adopt the new technology regardless of the nature of competition (Cournot or Bertrand). However, when there is a corner solution, there are equilibria where only one firm (or no firm) adopts the new technology. With a corner solution the nature of competition affects the equilibrium outcomes.