Format and Auction Sequence in Multi-Item Multi-Unit Auctions (original) (raw)

Auction Format and Auction Sequence in Multi-Item Multi-Unit Auctions -- An Experimental Study

SSRN Electronic Journal, 2000

We experimentally study the effect of auction format (sealed-bid vs. closed clock vs. open clock) and auction sequence (simultaneous vs. sequential) on bidding behaviour and auction outcomes in auctions of multiple related multi-unit items. Prominent field applications are the sale of emission permits, fishing rights, and electricity. We find that, when auctioning simultaneously, clock auctions outperform sealed-bid auctions in terms of efficiency and revenues. This advantage disappears when the items are auctioned sequentially. In addition, auctioning sequentially has positive effects on total revenues across all auction formats, resulting from fiercer competition on the item auctioned first.

Experimental results for single period auctions

Proceedings of the Thirty-First Hawaii International Conference on System Sciences, 1998

The objective of this paper is to present experimental results for testing the performance of different auction mechanisms related to the introduction of competitive markets for the generation of electricity. The research is based on the concept of smart markets introduced by Vernon Smith and a simulation model (PowerWeb) of a realistic bulk power system. There are unique physical aspects associated with the supply of electricity (e.g. required instantaneous matching of supply and demand, unintended congestion of parallel transmission routes and maintenance of system stability in response to disturbances). As a result, traditional theories of efficient markets and auction structures developed for other commodities may not be efficient if applied without alteration to markets for electricity. Conversely, current utility rules of operation developed for a centrally-planned regime may not be appropriate in a competitive environment.

Sequential Auctions and Auction Design

SSRN Electronic Journal, 2000

Often an auction designer has the option of selling, or purchasing, those lots available in one auction or a sequence of auctions. In addition, bidder opportunities will not be static, in part due to arrival of information, but also because bidders can face deadlines for making decisions. This paper examines the optimal decision about how to divide what is available over time. * I have benefitted from the helpful comments of writing this paper. The usual disclaimer applies.

Discrete clock auctions: an experimental study

Experimental Economics, 2012

We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. In theory, both the HRB and LAB auctions maximize revenues and are fully efficient in our setting. Our experimental results indicate that the LAB auction achieves higher revenues. This revenue result may explain the frequent use of LAB pricing. On the other hand, HRB is successful in eliciting true values of the bidders both theoretically and experimentally.

Behavior in Multi-Unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions

Econometrica, 2001

We experimentally investigate the sensitivity of bidders demanding multiple units of a homogeneous commodity to the demand reduction incentives inherent in uniform price auctions. There is substantial demand reduction in both sealed bid and ascending price clock auctions with feedback regarding rivals' drop-out prices. Although both auctions have the same normal form representation, bidding is much closer to equilibrium in the ascending price auctions. We explore the behavioral process underlying these differences along with dynamic Vickrey auctions designed to eliminate the inefficiencies resulting from demand reduction in the uniform price auctions.

An experimental test of alternative models of bidding in ascending auctions

International Journal of Game Theory, 2005

The theory and behavior of the clock version of the ascending auction has been well understood for at least 20 years. The more widely used oral outcry version of the ascending auction that allows bidders to submit their own bids has been the subject of some recent controversy mostly in regard to whether or not jump bidding, i.e. bidders submitting bids higher than required by the auctioneer, should be allowed. Isaac, shows that the standard equilibrium for the clock auction does not apply to the non-clock format and constructs an equilibrium bid function intended to match with field data on ascending auctions. In this study, we will use economic experiments to provide a direct empirical test of that model while simultaneously providing empirical evidence to resolve the policy disputes centered around the place of jump bidding in ascending auctions.

Large-scale Multi-item Auctions: Evidence from Multimedia-supported Experiments

List of Figures xiii List of Tables xv 1 Introduction 1.2 Research Questions and Structure of the Text This thesis investigates the auction designs proposed for the sale of spectrum rights and emissions permits with respect to three criteria. Research Question 1: How do the auction designs proposed for two specific large-scale applications differ with respect to efficiency, revenue and price signals? First, from the perspective of a social planner, items should be allocated to the bidders who value them most. This is equivalent to maximizing the sum of the market participants' values, the so-called social surplus. When the social surplus is maximized, no participants in the market can improve their situation without making some other participants worse off. The corresponding allocation is called efficient. A second criterion is the generation of revenues for the auctioneer. A rational, profitmaximizing auctioneer seeks to maximize the auction revenue. If the auctioneer is the state, social welfare may be more important than revenue. However, social welfare may exceed the scope of an auction. For instance, the auction revenues allow the government to redistribute some part of the bidders' surplus to the society and, in return, to reduce distortional taxes (cf. Section 2.2.2). A third criterion for the evaluation of auction designs is whether and to what extent an auction provides price signals to the market. Firms use price information for planning and accounting purposes, and the exchange value of an item is approximated by its market prices. Further, in the course of the auction process itself, if the auctioneer calculates and publishes prices during the auction, bidders gain information on the valuations of the opposing bidders. They can then incorporate this information into the estimation of the market value of the items and improve their bids accordingly. Seeking to answer Research Question 1, this thesis is structured as follows. Chapter 2 explains the three criteria for the evaluation of the auction designs in more detail, and presents auction designs that are relevant for the applications studied in this thesis. 3 3 Readers familiar with the basic concepts and auction designs may want to skip Chapter 2 and focus on Chapters 3, 4, and 5. 6 1.2 Research Questions and Structure of the Text Chapter 3 is devoted to the methods of experimental economics which are required for answering Research Question 1. As the core of this thesis, Chapters 4 and 5 report the experimental Studies 1 and 2 on emissions permits and spectrum rights applications of multi-item auctions. Finally, Chapter 6 concludes by providing a summary of the results, stating open questions and pointing out aspects of future research. Studies 1 and 2 are also an example of the limits of the experimental approach in economics, and of how these limits can be moved. Factors like the substitutive or complementary nature of the auctioned goods, the presence of uncertainty and sometimes elaborate auction rules complicate an experimental situation. In order to answer Research Question 1, Chapter 3 develops several extensions of the toolkit of experimental economics. This leads to a second, methodological research question. Research Question 2 (Methodological Research Question): How can experimenters guarantee control, reproducibility and validity in largescale testbed experiments? Traditionally, economic experiments serve to test theoretical models or constructs which are well arranged and clearly structured. These experiments seek to isolate effects by modeling a market situation in the laboratory. With the goal of studying the effects of certain parameters of interest, only these parameters are manipulated between treatments, while holding all other parameters equal-in order to obtain a maximum of control and comparability throughout all the observations in the experiment. The employment of laboratory experiments for investigating more complicated realworld markets was introduced in the 1990's, when Plott (1994) argued that laboratory experiments should serve as a testbed for the design of markets. In principle, the scientific criteria of control, reproducibility and validity also hold for the evaluation of market designs for large-scale applications. However, it may be difficult to guarantee control in highly complex environments. For example, one major problem is guaranteeing the subjects' comprehension without interacting with them in an uncontrolled way. Chapter 3 proposes and implements a set of extensions of the toolkit of experimental economics for the investigation of large-scale applications by applying the empirical and theoretical results of cognitive research. Reverting to state-of-the-art technological 7

Sequential Auctions with Capacity Constraints: An Experimental Investigation

We conduct a laboratory experiment where groups of 4 subjects constrained to obtain at most one good each, sequentially bid for three goods in first and second price auctions. Subjects learn at the beginning of each auction their valuation for the good and exit the auction once they have obtained one good. We show that, contrary to equilibrium predictions, subjects' bidding behavior is excessively similar across units and across mechanisms at the aggregate level. We provide two (complementary) explanations for these departures. One is bounded rationality. Subjects do not fully comprehend subtle differences between mechanisms. The other is self-selection. Subjects are very heterogeneous and some of them deviate more from equilibrium than others. Since deviations take mostly the form of overbidding, these subjects win the first or second good and exit the auction, leaving those who play closer to theoretical predictions to bid for the third good. Support for this hypothesis comes from the documented higher bidding, lower efficiency and lower profits associated with the first and second unit compared to the third one.