Showing papers on "Bidding published in 1997"

Single Crossing Properties And The Existence Of Pure Strategy Equilibria In Games Of Incomplete Information

Abstract: This paper derives sufficient conditions for a class of games of incomplete information, such as first price auctions, to have pure strategy Nash equilibria (PSNE). The paper treats games between two or more heterogeneous agents, each with private information about his own type (for example, a bidder's value for an object of a firm's marginal cost of production), and the types are drawn from an atomless joint probability distribution which potentially allows for correlation between types. Agents' utility may depend directly on the realizations of other agents' types, as in Milgrom and Weber's (1982) formulation of the "mineral rights" auction. The restriction we consider is that each player's expected payoffs satisfy the following single crossing condition: whenever each opponent uses a nondecreasing strategy (that is, an opponent who has a higher type chooses a higher action), then a player's best response strategy is also nondecreasing in her type. The paper has two main results. The first result shows that, when players are restricted to choose among a finite set of actions (for example, bidding or pricing where the smallest unit is a penny), games where players' objective functions satisfy this single crossing condition will have PSNE. The second result demonstrates that when players' utility functions are continuous, as well as in mineral rights auction games and other games where "winning" creates a discontinuity in payoffs, the existence result can be extended to the case where players choose from a continuum of actions. The paper then applies the theory to several classes of games, providing conditions on utility functions and joint distributions over types under which each class of games satisfies the single crossing condition. In particular, the single crossing condition is shown to hold in all first-price, private value auctions with potentially heterogeneous, risk-averse bidders, with either independent or affiliated values, and with reserve prices which may differ across bidders; mineral rights auctions with two heterogeneous bidders and affiliated values; a class of pricing games with incomplete information about costs; a class of all-pay auction games; and a class of noisy signaling games. Finally, the formulation of the problem introduced in this paper suggests a straightforward algorithm for numerically computing equilibrium bidding strategies in games such as first price auctions, and we present numerical analyses of several auctions under alternative assumptions about the joint distribution of types.

Auctioning Conservation Contracts: A Theoretical Analysis and an Application

Abstract: Auction theory is used to analyze the potential benefits of auctions in allocating contracts for the provision of nonmarket goods in the countryside. A model of optimal bidding for conservation contracts is developed and applied to a hypothetical conservation program. Competitive bidding, compared to fixed-rate payments, can increase the cost effectiveness of conservation contracting significantly. The cost revelation mechanism inherent in the bidding process makes auctions a powerful means by which to reduce the problems of information asymmetry. Strategic bidding behavior, which may adversely affect the performance of sequential auctions, is difficult to address by means of auction design.

Ohio School Milk Markets: An Analysis of Bidding

Abstract: We examine the institutional details of the school milk procurement process, bidding data, statements of dairy executives, and supply characteristics in Ohio during the 1980's. We compare the bidding behavior of a group of firms to a control group. We find that the behavior of each of the firms differs from that of the control group. We argue that the behavior of these firms is consistent with collusion. The estimated average effect of collusion on market prices is about six and one half percent, or roughly the cost of shipping school milk about 50 miles.

The FCC Spectrum Auctions: An Early Assessment

Abstract: This paper analyzes six spectrum auctions conducted by the Federal Communications Commission (FCC) from July 1994 to May 1996. These auctions were simultaneous multipleround 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.

Auctions with Downstream Interaction among Buyers

Abstract: We study auctions for an invisible object. The outcome of the auction influences the future interaction among agents. The impact of that interaction on agent's is assumed to be a function of the agent's valuations. While agent's i valuation is private information to i, the other valuations are not observeable by i at the time of the auction. We derive equilibrium bidding strategies for second price auctions in which the seller may impose reserve prices or entry fees, while pointing out the differences between the cases where impacts (which we call externalities) are positive or negative. Finally, we study the effect of reserve prices and entry fees on the seller's revenue.

Auctions with Private Uncertainty and Resale Opportunities

Abstract: This paper studies auctions held before bidders are sure of the values they place on the object for sale, leaving potential gains to subsequent resale trade. While important insights from models of auctions without resale carry over, equilibrium bidding can be fundamentally altered by the endogeneity of valuations and the informational linkages between primary and secondary markets. As a result, models ignoring resale may often misguide policy and interpretation of bidding data. Furthermore, results regarding players' incentives to signal through their bids, the effects of resale on auction revenues, an d revenue comparisons between standard auctions depend on the structure of the secondary market.

Equity Issuance and Adverse Selection: A Direct Test Using Conditional Stock Offers

Abstract: We conduct a unique test of adverse selection in the equity issuance process. While common stock is the dominant means of payment in bank mergers, stock acquisition agreements provide target shareholders with varying degrees of protection against adverse price movements in the bidder's stock between the time of the merger agreement and the time of merger completion. We show that it is the degree of protection against adverse price changes and not the percent of stock offered in a bank merger that explains bidder merger announcement abnormal returns. This result is difficult to explain outside of an adverse selection framework. FIRMS ARE OFTEN RELUCTANT to issue equity to fund new investments. A frequently cited rationale for this reluctance is that markets might interpret an equity issue authorized by managers with private information about a firm's value as a signal that the firm's stock is overvalued (Myers and Majluf (1984)). Consistent with this adverse selection scenario, firms generally experience a significant drop in their stock price when they announce that they are selling stock in a secondary offering,1 and merger announcement returns are lower when bidding firms offer stock, rather than cash, as payment.2 There are, however, alternative explanations for why share prices decline when firms issue equity. Firms issuing equity rather than debt may forego the discipline that debt imposes on managers (Jensen (1986)) or lose the potential tax advantages of debt financing. Additionally, firms issuing equity may face a downward sloping demand curve for firm shares (Loderer, Cooney, and Van Drunen (1991)). While these explanations are not mutually exclusive, testing the validity of any one explanation requires controlling for the alternatives. In this article we conduct a unique test that isolates the impact of adverse selection in the equity issuance process. Our tests focus on the means of payment used in a large sample of bank mergers agreements during the period 1985-1992. Acquiring banks issuing stock to target bank shareholders offer varying degrees of protection to target shareholders against adverse private

Auctions and Bidding on the Internet: an Assessment

Abstract: Electronic commerce (EC) activities are growing rapidly on the internet. One area that receives little publicity is that of auctions and bidding. However, these interrelated activities can become a major EC factor due to the creation of special online brokering services as well as electronic auctions and bids offered directly by private and public organizations. This paper provides a discussion of the benefits and a description of the goods and services traded.

The effect of contract type and size on competitiveness in bidding

Abstract: Multiple regression is used to construct a prediction equation relating bidder competitiveness (the dependent variable) to the independent variables of bidder, contract type and contract size. The regression model shows that differences in contractor competitiveness are greater for different contract sizes than for different contract types. The most competitive contractors appear to be those with a preferred contract size range. Such a model can be used as part of a more systematic approach in prequalifying contractors. It may also be used by contractors as a basis for assessing bidding performance.

Strategic bidding in an energy brokerage

Abstract: This focus of this paper is to present a framework in which strategies may developed for the individual participants in an energy brokerage. Such a framework is expected to be important with the increasing interest in electricity market structures, such as the energy brokerage, that deregulation has produced. To illustrate the process of strategic bidding, a simple suboptimal bidding strategy is presented with the aid of a numerical example. The bidding strategy must be suboptimal because of the amount of unknown information about the other bidders. Further tuning of this strategy will be required before application to realistic scenarios.

Efficient selection of suppliers over the internet

Abstract: The Internet has become increasingly important to organizations for certain aspects of electronic commerce Many organizations have set up Web pages to capture the attention of potential buyers and to develop new business relationships Others have set up indexing services to provide easy search capabilities to prospective buyers While the unit search and communication costs have been lowered dramatically by the Internet, the cost of evaluating potential suppliers may still be prohibitive, especially for certain types of products and services Thus, although the Internet makes it possible to locate a large number of new suppliers, an organizational buyer needs to deploy appropriate supplier-selection strategies (such as sequential evaluation with stopping rules versus bidding systems) that consider all cost elements involved in choosing a vendor We develop an analytical model that allows a buyer to maximize payoff (net of supplier search, communication, and evaluation costs) from the selection process We analyze how the nature of the product and the buyer's expectations about supplier characteristics determine whether a sequential evaluation or bidding should be used in the selection process The Internet, when used in conjunction with the proposed strategies, results in a lower total expected cost to the buyer, even though more suppliers are being evaluated, because a better supplier is selected We describe how intelligent database searching can further increase the efficiency of the proposed selection strategies We also develop a minimum requirements announcement mechanism, which makes supplier selection through a bidding strategy economically feasible in situations where legal restrictions may bar the use of sequential evaluation

Competition or Compensation: Supplier Incentives Under the American and Japanese Subcontracting Systems

Abstract: Two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer. The 'American' system involves competitive bidding on each contract, large orders, and inspections. The 'Japanese' system involves repeat purchases from a supplier who earns a premium, small orders, and no inspections. Both systems may coexist as local solutions, but the global optimum is determined by the ratio of set-up to inspection costs. This suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the American to the Japanese system observed in many industries. Copyright 1997 by American Economic Association.

Method and system for processing and transmitting electronicauction information

Abstract: A system and method for conducting a multi-person, interactive auction, in a variety of formats, without using a human auctioneer to conduct the auction The system is preferably implemented in software The system allows a group of bidders to interactively place bids over a computer or communications network Those bids are recorded by the system and the bidders are updated with the current auction status information When appropriate, the system closes the auction from further bidding and notifies the winning bidders and losers as to the auction outcome

Dynamic bidding protocol for conducting multilink sessions through different physical termination points

Abstract: A stack group bidding protocol (SGBP) establishes systems as members of a stack group connected together through one or more networks. When an event, such as establishment of a point-to-point link, occurs on one of the systems, a bid request is sent to each stack group member. Each stack group member then bids for the event. The bid is based on dynamic bid weighting criteria that varies depending on the computation capacity of the member at the time the bid request is initiated. A multichassis multilink PPP (MLP) protocol utilizes the SGBP to conduct multilink PPP sessions for links that either originate or terminate on different physical systems. A L2F forwarding protocol is used in combination with multichassis MLP to forward the links from one system to another system and offers location transparency.

Second‐Price Auctions with Asymmetric Payoffs: An Experimental Investigation

Abstract: A series of two-player, second-price common-value auctions are reported. In symmetric auctions, bidders suffer from a winner's curse. In asymmetric auctions in which one bidder has a private value advantage, the effect on bids and prices is proportional rather than explosive (the prediction of Nash equilibrium bidding theory). Although advantaged bidders are close to making best responses to disadvantaged bidders, the latter bid much more aggressively than in equilibrium, thereby earning negative average profits. Experienced bidders consistently bid closer to the Nash equilibrium than inexperienced bidders, although these adjustments towards equilibrium are small and at times uneven.

Distributed decision-making using the contract net within a mediator architecture

Abstract: Manufacturing industries are facing increasing competitive challenges in both maintaining their existing markets and improving their capability to respond efficiently to marketplace needs. New architectures are required for next generation of manufacturing systems which must be developed to meet these challenges. This paper introduces a novel approach for dynamically creating and managing agent communities or virtual clusters. These virtual clusters use Contract Net bidding for multi-agent negotiation and Mediator agents to co-ordinate their actions. The manufacturing system is thus populated by heterogeneous agents and structures of control which operate autonomously during the planning and execution periods of the manufacturing tasks.

Initial public offerings: going by the book

Abstract: In the U.S., and increasingly in other countries as well, IPO securities are marketed to investors in a process known as “book-building”—one that amounts to polling institutional investors to establish a demand schedule for the issue and then allotting stock to individual investors according to the strength of their professed interest. Although book-building methods require use of discriminatory tactics that have attracted strong criticism from investors and regulators, this article defends such practices by demonstrating that book-building is more efficient than alternative methods. It effectively allows issuers to increase the net proceeds of their offerings by making better use of information about market demand conditions. In the process of explaining the efficiency of the book-building method, this article also offers a plausible explanation for a phenomenon that has long puzzled economists: the systematic underpricing of IPOs. The key to the success of a book-building effort lies in the use of a strategic pricing and allocation policy designed to offset the investor's incentive to understate his or her interest in an IPO. By committing to favor investors who provide strong indications of interest with relatively large allocations of underpriced shares, the investment bank can limit the distortion of investor's incentives in bidding and so increase the level of proceeds the issuing firm can expect to generate from its IPO.

Up in the Air: GTE's Experience in the MTA Auction for Personal Communication Services Licenses

Abstract: In late 1994, GTE, one of the largest telecommunications firms in the world, entered an auction for the rights to provide personal communications services (PCS) using the electromagnetic spectrum. The administering agency, the Federal Communications Commission, adopted a novel multiple-round format for the PCS auction. The format presented GTE with a complex bidding problem. This article describes how the GTE bidding team answered the following question: Given its budget and valuations and the information available about rival bidders, how should GTE bid to achieve the best attainable outcome?

The NOAA Panel Report: A New Beginning or the End of an Era?

Abstract: an account of the prospective contribution of some proposed project or policy to the satisfaction of human preferences. The central focus on preference satisfaction led BC analysts to be concerned with economic surpluses and the values of nonmarketed goods and amenities, matters that took the inquiry well beyond the prices and quantity changes that first attracted the analysts' attention. CV was specifically designed for enlisting survey research methods, with their broad scope of potential applications, to obtain benefit estimates consistent with a rigorous welfare change measurement framework. Samuelson's model for valuing public goods, in which individual valuations were rigorously defined and aggregated to obtain the social value, was applied directly. In early CV applications (i.e., through the 1970s), the objective was to define a baseline or default situation and a proposed project and to ask respondents to report a valuation that would leave them indifferent between implementing the proposal or defaulting to the baseline situation. For proposed projects that would improve things, but at a cost, respondents were asked to announce their maximum willingness to pay (WTP). Alternatively, to make sure that the full consumer's surplus was identified, iterative bidding was used to drive the respondent all the way to the point of indifference. The market analogy, with only minimal concessions to the public goods context, dominated the language of CV survey format and of communication among CV researchers. These early excursions into CV encountered skepticism from economists, who have traditionally argued--despite the isolation paradox that undermines markets in public goods-that real transactions are much more reliable indicators of value than self-reported behavioral intentions. Many social scientists were skeptical or even hostile to CV for reasons quite different from those that worried economists. They recognized that there are many different philosophical systems of valuing and many different institutions beyond the market for providing public amenities. To these social scientists, it seemed perverse to force the richness and diversity of human ways of valuing and providing public amenities into the rigid molds of BCA and CV.1

Lock-in and the Costs of Switching Mainframe Computer Vendors: What Do Buyers See?

Abstract: This paper closely studies the historical experiences of computer users faced with incompatibility problems. One key point throughout the discussion is that operating system compatibilities and application software were the principal source of switching costs. The larger point here is that vendor specificity is partially a choice-variable for the buyer. It influences many facets of an organization, as well as management and employee behavior. Foresighted users anticipate that daily decisions regarding programming practices and equipment maintenance influence the costs of switching during a later vendor decision. Buyers take a wide variety of actions, both simple and complex. Most of the paper is concerned with documenting and analyzing how buyers change investments, collect information, manipulate bidding procedures and change managements practices--either in anticipation of, or in response to, incompatibility problems. Copyright 1997 by Oxford University Press.

Prediction of system marginal price in the UK Power Pool using neural networks

Abstract: There is an increasing interest in the prediction of system marginal price (SMP) in the Power Pool since electricity industry vesting in England and Wales in 1990. The prediction of SMP improves the financial performance of an independent power producer bidding in the day-ahead market. This paper presents a successful application of using neural networks to predict SMP at each settlement period on the next scheduling day in the UK Pool. The approach does not require any individual Pool participant commercially sensitive information; the historical public SMP and other data are used to train the neural network. The result reveals that the mean absolute percent error is reasonable. The program is run on a PC. The data processing program is coded in Visual C++ with a user friendly windows interface.

Acquisitions of solvent thrifts: Wealth effects and managerial motivations

Abstract: We examine voluntary acquisitions of solvent stock-held thrift institutions since 1979, and find that bidding firms suffered losses, target firms gained, and the impact of the merger on the bidder-target pair was positive on average. During the post-FIR-REA period acquirers experienced smaller losses and targets experienced smaller gains relative to the pre-FIRREA period. An investigation into the motives of bidding firm management provides evidence indicating the presence of synergy, agency, and hubris motivations in the pre-FIRREA period. Although the acquisitions environment underwent substantial changes in the post-FIRREA period, we find no evidence of corresponding changes in acquisition motivations.

Bidding strategies for conventional and trenchless technologies considering social costs

Abstract: With recent rapid advances in trenchless technologies, acceptance of such methods for inspection, repair, upgrade, and installation of underground infrastructure systems has been increasing. Trenchless technology has greatly reduced the footprint of the construction site and the need for much of the trenching that is normally associated with underground construction. The reduction of the construction footprint and the amount of trenching has greatly impacted a class of costs called social costs. Social costs can be considered the costs of a construction project which are not carried in the construction bid such as traffic delays, reinstatement of public and private property, and public perception. Social costs are not clearly defined, nor is their estimation straightforward. What is the actual cost for replacing a lawn damaged through trenching or the political cost for closing a main thoroughfare close to an election? Inclusion of social costs with project costs can greatly impact the normal tendering process. Inclusion of social costs allows the municipality to estimate the true costs of the project and therefore identify the most economically efficient bid based on minimizing the total cost. From the taxpayers point of view the inclusion of at least a subset of the social costs in the selection process is desirable. However, from the point of view of a competitive bidder, inclusion of costs not under their control (social costs) in the selection process makes the determination of the optimal bid difficult for a contractor. This paper discusses traditional bidding strategies in which the bidder can optimize the bid based on a probabilistic approach using the expected-value approach to bidding under the assumption that the low-bid method is used. This paper also puts forward two methods for the estimation of social costs which can be used in conjunction with the bidding methodology discused. A worked example demonstrates the application of one of the estimation methods and the bidding methodology.(A)