“Measuring Risk Aversion in a Name Your Own Price Channel”
Ali Abbas (firstname.lastname@example.org) and Il-Horn Hann
Abstract: This paper measures the risk aversion coefficients exhibited by online bidders in a Name-Your Own Price (NYOP) intermediary. We present a decision analytic model to determine the optimal bidding sequence and derive the relation between the increments in each two successive bids and the bidders’ risk aversion coefficient. We then use field data from an NYOP auction firm to estimate the risk aversion that is exhibited throughout the online bidding process. Based on three different product groups, we find that risk aversion is a significant variable in the bidding strategy of consumers. We also find that bidders exhibit relatively high risk aversion on internet sites. To our knowledge this is the first work that empirically examines risk aversion in a non- experimental internet-based auction setting.
“Bargaining Power and Supply Base Diversification”
Damian Beil (email@example.com), and Zhixi Wan (firstname.lastname@example.org).
Abstract: We examine a supply base diversification problem faced by a buyer who periodically holds auctions to award short term supply contracts among a cohort of suppliers (i.e., the supply base). To mitigate significant cost shocks to procurement, the buyer can diversify her supply base by selecting suppliers from different regions. We find that the optimal degree of supply base diversification depends on the buyer's bargaining power, i.e., the buyer's ability to choose the auction mechanism. At one extreme, when the buyer has full bargaining power and thus can dictatorially implement the optimal mechanism, she prefers to fully diversify. At the other extreme, when the buyer uses a reverse English auction with no reserve price due to her lack of bargaining power, she may consider protecting herself against potential price escalation from cost-advantaged suppliers by using a less diversified supply base. We also examine cases where the buyer has intermediate bargaining power and can employ a reserve price and/or a first-price sealed-bid auction, and we find that in general the more bargaining power the buyer has to control price escalation from cost-advantaged suppliers the more she prefers a diversified supply base.
“Eﬃciency with Linear Prices? The Combinatorial Clock Auction and its Extensions”
Martin Bichler(email@example.com), Pasha Shabalin and Georg Ziegler.
Abstract: The Combinatorial Clock (CC) design has a number of virtues, which made it the mechanism of choice in many practical combinatorial auctions. Ask prices are monotonously ascending, the ask price calculation is trivial, and the computationally hard winner determination is limited to the final stages of the auction. Unfortunately, linear-price combinatorial auctions cannot be fully efficient with best-response bidders and general valuations, and it is unclear which strategy a bidder should follow in such auctions. We show that the worst-case efficiency in the CC auction can actually be as low as 50%, if bidders follow the best-response strategy. We identify demand-masking valuations, i.e., the characteristics of valuation functions which can cause such low efficiency of the CC auction. Having analyzed the case of best-response bidding, which is typically assumed in theory, we focus also on powerset bidding strategies, in which bidders bid on all bundles with positive payoﬀ. We introduce the CC+ auction, an extension of the CC auction with a modified price update rule, and show that powerset bidding always leads to efficient outcomes. We also show that with an even stronger price update rule and a Vickrey payment rule, powerset bidding is an ex-post Nash equilibrium. In computational experiments, we show that the CC+ auction achieves high levels of efficiency even if the bidders are restricted in the number of bids that they can submit in each round.
“The Winner's Curse with Asymmetric Players”
Robert Bordley (firstname.lastname@example.org) and Ronald Harstad (HarstadR@missouri.edu).
Abstract: This paper considers the winner's curse when all players believe that one player has somewhat better information. As a result, weaker players alter their bids so as to increase the chances of the more informed player winning the auction. Hence the winner's curse accentuates the advantage enjoyed by the player who is considered more informed.
“Group Buying Mechanisms under Quantity Discounts”
Rachel R. Chen (email@example.com), Cuihong Li (firstname.lastname@example.org) and Rachel Q. Zhang
Abstract : When a seller offers quantity discounts, interested buyers may either self-organize or rely on a third party to aggregate their purchasing quantities to obtain lower prices, referred to as group buying. A group buying mechanism is a set of rules that determine the amount each buyer will purchase and the price each buyer will pay, based on the information submitted from buyers in group purchase. This paper concerns group buying among heterogeneous buyers given a seller's quantity discount schedule under both the uniform price (where buyers pay at the same unit price obtained by the group) and non-uniform price group buying mechanisms. We show that group buying mechanisms have a direct impact on the buyers' payments, the buyers' purchase quantities, and thus, the seller's revenue. We also compare buyers' purchasing quantities and surplus under different group buying mechanisms and when buyers buy alone.
“Spectrum Auction Design”
Peter Cramton (email@example.com).
Abstract: Spectrum auctions are used by governments to assign and price licenses for wireless communication. The standard approach is the simultaneous ascending auction, in which many related lots are auctioned simultaneously in a sequence of rounds. I analyze the strengths and weaknesses of the approach with examples from US spectrum auctions. I then present a variation, the package clock auction, adopted by the UK, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The package clock auction is a simple dynamic auction in which bidders bid on packages of lots. Most importantly, the auction allows alternative technologies that require the spectrum to be organized in different ways to compete in a technology-neutral auction. In addition, the pricing rule and information policy are carefully tailored to mitigate gaming behavior. An activity rule based on revealed preference promotes price discovery throughout the clock stage of the auction. Truthful bidding is encouraged, which simplifies bidding and improves efficiency. Experimental tests and early auctions confirm the advantages of the approach.
“Advances in Core-selecting Combinatorial Auctions”
Robert Day (Bob.Day@business.uconn.edu).
Abstract: Core-selecting auctions, in which outcomes are in the core with respect to submitted preferences, offer competitive revenues to the seller and arguably fair payments for bidders. This paradigm has recently been adopted for several European spectrum auctions, and is being studied for use in a few government applications in the U. S. In this talk I will discuss some of the subtleties of applying this approach in practice, with a focus on algorithmic implementation and the math programming that underlies the process.
“Some Observations on OR Practice and Academia”
Steve Graves (firstname.lastname@example.org).
“Threshold versus Exposure in Simultaneous Ascending Auctions”
Jacob Goeree (email@example.com) and Yuanchuan Lien
Abstract: We consider environments where a single global bidder interested in only the package that contains all items competes with local bidders interested in only a single item. This environment creates a severe “exposure problem” for the global bidder in the simultaneous ascending auction (SAA) where competition takes place on an item-by-item basis. We derive the Bayes-Nash equilibrium for this setup and illustrate the degree to which efficiency and revenue are suppressed as a result of the exposure problem. We also consider a variant of the simultaneous ascending auction that allows for package bidding (SAAPB). Our environment creates a severe “threshold” or free-riding problem for the local bidders since all that matters is that as a group they outbid the global bidder. We derive the Bayes-Nash equilibrium for the SAAPB and illustrate the extent to which efficiency and revenue are suppressed as a result of the threshold problem. We also report the results of experiments in which two or five local bidders compete with a single global bidder in either the SAA or SAAPB. While the experimental results closely match the theoretical predictions for SAA, we find little evidence for the threshold problem under SAAPB. As a result, the SAAPB performs equally well as the SAA in an environment where it is supposed to do much worse. These findings can be explained by considering the feedback effects of deviations from the Bayes-Nash equilibrium: in the SAAPB, the naive bidding strategy of bidding up to ones value is an “almost equilibrium.” In contrast, when the global bidder deviates from the Bayes-Nash equilibrium in the SAA, there are no feedback effects for the local bidders who follow a simple dominant strategy.
“Auctioning the Right to Choose When Competition Persists”
Ronald Harstad (HarstadR@missouri.edu) and
Vladimir Mares (firstname.lastname@example.org).
Abstract: Several papers compare auctioning heterogeneous assets sequentially with sequentially selling the option to choose among assets not yet taken. Typically motivated by auctions of condos for owner occupation, these papers have assumed that each winning bidder exits, so each successive auction has less competition. In many heterogeneous-asset-sale situations, a winning bidder may still be interested in acquiring further assets. We build a simple model of persistent competition, in which the distribution of equilibrium revenue from separate sales is shown to be a mean-preserving spread of the distribution of revenue from selling rights to choose. Persistent competition reveals that a high bidder does not always select his most preferred asset, and that one asset being slightly more likely to be a favored asset discontinuously affects equilibrium bidding.
“Combinatorial Spectrum Exchange Mechanism Design”
Karla Hoffman (email@example.com) and Dinesh Menon.
Abstract: A centralized combinatorial exchange has been considered as a means to enable efficient restructuring of spectrum holdings by allowing traders to buy and sell spectrum resources. We propose a new, two-sided, multiple round, trading mechanism that enables traders to specify reserve prices and submit consolidated bundle orders on spectrum assets to be bought and sold. Any trader may submit multiple such orders over several rounds. A trading agent's order may be executed by matching with bids and asks from one or more other agents. Acceptable bid and ask prices are adjusted each round to improve spread and the final, market-clearing trades are executed to maximize overall surplus. The paper describes the detailed design and contrasts alternative pricing approaches, trading languages and surplus allocation schemes. Computational and efficiency results are presented that evaluate the scalability, trading flexibility and incentives for participation in such an exchange auction.
“Price Dispersion in Electricity Auctions”
Shanshan Hu (firstname.lastname@example.org), Roman Kapuscinski and William Lovejoy
Abstract: The paper examines two interrelated questions: (a) the effect of capacity on wholesale pricing decisions in competitive settings, when both final demand and supply are price insensitive and (b) comparison of performance of two auctions (uniform and discriminatory) in such an environment. The problem is motivated by wholesale electricity market and the model allows us to explain high price volatility which is its common feature. The presented model focuses on the structural impacts of inelasticity and randomness of demand, variable production costs, and fixed capacity. We show that price dispersion stems from suppliers' randomized bidding and the variance of the price dispersion is mainly influenced by capacity utilization and technological asymmetry among suppliers. Introduction of demand uncertainty increases the chance of price dispersion but not necessarily the magnitude of price variance. Empirical data from the New England Power Pool (NEPOOL) illustrates our theoretical predictions related to price dispersion. The comparison between discriminatory and uniform auctions indicates that, at symmetric equilibria, they yield the same average price but discriminatory auction results in lower price volatility and, thus, might be more desirable. This insight continues to hold with uncertain demand and well describes cases with asymmetric bidders.
“Bidder Support Tools to Solve the Puzzle Problem in Iterative, Multiple-Unit Combinatorial Auctions”
Riikka-Leena Leskelä (email@example.com), with H. Wallenius, J. Wallenius, M. Koksalan, V. Ervasti, and J. Teich.
Abstract: What I call the puzzle problem refers to the problem bidders face in a sealed-bid, iterative, multiple unit combinatorial auction. The puzzle problem is an extension of the threshold problem. The bidders not bidding for the whole package do not know which quantities of which items to bid for in order to complement existing bids to fulfill the package. The situation is analogous to trying to find a missing piece for a puzzle without knowing the size and shape of the hole. We have developed two bidder support tools to help solve the puzzle problem: the Quantity Support Mechanism and the Group Support Mechanism.
“Push or Pull? Auctioning Supply Contracts”
Cuihong Li (firstname.lastname@example.org) and Alan Andrew Scheller-Wolf.
Abstract: Consider a buyer, facing uncertain demand, who sources from multiple suppliers via online procurement auctions (open descending price-only auctions). The suppliers have heterogeneous production costs, which are private information, and the winning supplier has to invest in production capacity before the demand uncertainty is resolved. The buyer chooses to offer a push or pull contract, for which the single price and winning supplier are determined via the auction. We show that with a pull contract, the buyer does not necessarily benefit from a larger number of suppliers participating in the auction, due to the negative effect of supplier competition on the incentive of supplier capacity investment. We thus propose an enhanced pull mechanism that mitigates this effect with a floor price. We then analyze and compare the outcomes of auctions for push and (enhanced) pull contracts, establishing when one form is preferred over the other based on the buyer's profits. We also compare our simple, price- only push an pull contract auctions to the optimal mechanisms, benchmarking the performance of the simple mechanisms as well as establishing the relative importance of auction design and contract design in procurement auctions.
“Nonconvex Electricity Auctions”
Richard O'Neill (email@example.com).
Abstract: Uniform, linear prices in power exchange markets, that allow non-convex bids by market participants may not result in an equilibrium in an economic sense and may not maximize surplus to market participants. We present a multi-part, discriminatory pricing mechanism that results in a market equilibrium in an economic sense and maximizes surplus for market participants. These multi-part prices do not require proceeds from outside the market to be implemented. In addition, we propose algorithms to ensure the use of linear prices for market clearing where feasible, and if not feasible, prices that minimize deviations from linear prices. We also describe a simple pro rata method for implementing the discriminatory multi-part prices, and discuss the degrees of freedom in pricing.
“Optimal Static Hedging of Volumetric Risk in a Competitive Wholesale Electricity Market”
Shmuel Oren (firstname.lastname@example.org) and Yumi Oum.
Abstract: In competitive wholesale electricity markets, regulated load serving entities (LSEs) and marketers with default service contracts have obligations to serve fluctuating load at predetermined fixed prices while meeting their obligation through combinations of long-term contracts, wholesale purchases and self-generation that are subject to volatile prices or opportunity cost. Hence, their net profits are exposed to joint price and quantity risk both of which are correlated with weather variations. In this paper we develop a static hedging strategy for the LSE (or marketer) whose objective is to minimize a mean-variance utility function over net profit, subject to a self-financing constraint. Since quantity risk is non-traded, the hedge consists of a portfolio of price-based financial energy instruments, including a bond, forward contract and a spectrum of European call and put options with various strike prices. The optimal hedging strategy is jointly optimized with respect to contracting time and the portfolio mix, which varies with contract timing, under specific price and quantity dynamics and the assumption that the hedging portfolio which matures at the time of physical energy delivery is purchased at a single point in time. Explicit analytical results are derived for the special case where price and quantity have a joint bivariate lognormal distribution.
"Do Preferences for Charitable Giving Help Auctioneers?"
Svetlana Pevnitskaya (email@example.com), R. Mark Isaac and Timothy C. Salmon
Abstract: Preferences for charitable giving in auctions can be modeled by assuming that bidders receive additional utility proportional to the revenue raised by an auctioneer. The theory of bidding in the presence of such preferences results in a very counterintuitive prediction which is that in many cases, bidders having preferences for charitable giving does not lead to a substantial revenue advantage for an auctioneer. We test this theory and this prediction with a series of experiments. In one experiment we induce charitable preferences exactly as specified in the model to see if bidders respond to them as predicted. We find that they do. We then conduct a second experiment in which the revenue from the auctions is donated to actual charities to verify the robustness of the prediction when charitable preferences are generated by a more natural source and find again that the theoretical prediction holds: even strong charitable preferences do not result in substantial revenue increases to the auctioneer.
“Charitable Motives and Bidding in Charity Auctions”
Peter Popkowski Leszczyc (firstname.lastname@example.org) and Michael H. Rothkopf.
Abstract: Research on bidding in auctions has generally relied on the assumption of self-interested bidders. This work relaxes this assumption in the context of charity auctions and uncovers altruistic bidding motives. These motives lead to voluntary shill-like bidding strategies. This results in fewer bidders and higher auction revenues. We demonstrate empirically the motives, the strategies, and the resulting outcomes and discuss implications for auction designers as well as charitable organizations.
“Cost Allocation for Combinatorial Auctions in Bilateral Transportation Procurement”
Monia Rekik (email@example.com), Michel Gendreau, Teodor Gabriel Crainic, and Jacques Robert
Abstract: We consider a multilateral transportation procurement market where multiple shippers and carriers trade transportation contracts. The trading process corresponds to a combinatorial reverse auction where carriers are the only bidders. By participating to the same auction, shippers offer the carriers more choice in constructing interesting package bids. This gain in collaboration should be well-shared among shippers at the end of the auction process. Based on this, we propose some procedures inspired by classical cooperative game-theory concepts to determine each shipper’s payment. Experimental results will be presented.
“Design and Algorithms for Modern Kidney Exchanges”
Tuomas Sandholm (firstname.lastname@example.org).
Abstract: In kidney exchanges, patients with kidney disease can obtain compatible donors by swapping their own willing but incompatible donors. The clearing problem involves finding a social welfare maximizing set of non-overlapping short cycles. We proved this NP-hard. It was one of the main obstacles to a national kidney exchange. We presented the first algorithm capable of clearing these exchanges optimally on a nationwide scale. The key was incremental problem formulation. We adapted two paradigms for this: constraint generation and column generation. For each, we developed techniques that dramatically improve runtime and memory usage. Furthermore, clearing is an online problem where patient-donor pairs and altruistic donors appear and expire over time. We developed trajectory-based online stochastic optimization algorithms (that use our optimal offline solver as a subroutine) for this. I will discuss design parameters and tradeoffs. Our best online algorithms outperform the current practice of solving each batch separately. I will share my experiences from using these algorithms in real kidney exchanges, and the generalizations we introduced. For one, we used them to launch the first never-ending altruistic donor chains. I am also involved with UNOS in designing the nationwide kidney exchange. I will discuss current design considerations.
“Optimal Auctions with Financially Constrained Bidders”
Rakesh Vohra (email@example.com) and Mallesh Pai.
Abstract: We consider an environment where potential buyers of an indivisible good have liquidity constraints, in that they cannot pay more than their `budget' regardless of their valuation. A buyer's valuation for the good as well as her budget are her private information. We derive constrained-efficient and revenue maximizing auctions for this setting. In general, the optimal auction requires ‘pooling’ both at the top and in the middle despite the maintained assumption of a monotone hazard rate. Further, the auctioneer will never find it desirable to offer lump sum subsidies to bidders with low budgets.
"An Empirical Analysis of Price, Quality, and Incumbency in Service Procurement Auctions"
D.J. Wu (firstname.lastname@example.org) with Tunay I. Tunca and Fang (Vivian) Zhong
Abstract: Using online reverse auctions to procure business services is a new and growing practice. A major challenge in employing service procurement auctions is maintaining quality of services procured at high levels while obtaining price savings. In this paper, using data from legal service procurement auctions, we study the roles supplier quality and incumbency play on effective use of auctions for business services. Supported with our theoretical results, and counter to some existing arguments, which claim that employment of auctions hurt procurement quality, we empirically verify that service procurement auctions can bring substantial savings to a buyer without significantly compromising quality. We demonstrate that savings come from both incumbents and non-incumbents with no evidence of a significant difference between the groups in this dimension. We find that with an open- ended auction format, introduction of non-incumbent suppliers to the process increases the average quality of winning incumbent suppliers, and we provide evidence on how this format can work to maintain quality while achieving savings for the buyer. Further, since our data set allows us to quantify the buyer’s quality assessments of the suppliers, it provides a unique opportunity to control for quality in testing the effect of suppliers’ incumbent status on awarding contracts. Utilizing this ability, we demonstrate that what may traditionally be perceived as incumbent bias can in fact be a revelation of a preference for quality in disguise. We provide further support to this result by extracting buyer’s revealed preferences, which significantly differ from her stated preferences in favor of quality over price.
“No-Holdback Allocation Rules for Continuous-Time Assemble-to-Order Systems”
Yao Zhao (email@example.com), Yingdong Lu and Jeannette Song
Abstract: This paper analyzes a class of common-component allocation rules, termed no-holdback (NHB) rules, in continuous-review assemble-to-order (ATO) systems. We assume that component inventories are replenished following base-stock policies, subject to positive lead times. Different from the usually assumed FCFS component allocation rule, a NHB rule will not allocate a component to a product demand unless doing so will lead to immediate fulfillment of that demand. We identify metrics as well as cost and product structures under which NHB rules outperform all other component allocation rules. For systems with certain product structures, we obtain closed-form key performance expressions for NHB rules and compare them with those under FCFS. For general product structures, we present performance bounds and approximations. Finally, we discuss the applicability of these results to more general ATO systems.