Showing papers on "Bidding published in 2000"

Putting Auction Theory to Work: The Simultaneous Ascending Auction

Abstract: I review the uses of economic theory in the initial design and later improvement of the "simultaneous ascending auction," which was developed initially for the sale of radio spectrum licenses in the United States. I analyze some capabilities and limitations of the auction, the roles of various detailed rules, the possibilities for introducing combinatorial bidding, and some considerations in adapting the auction for sales in which revenue, rather than efficiency, is the primary goal.

Bidding and allocation in combinatorial auctions

Abstract: When an auction of multiple items is performed, it is often desirable to allow bids on combinations of items, as opposed to only on single items. Such an auction is often called "combinatorial", and the exponential number of possible combinations results in computational intractability of many aspects regarding such an auction. This paper considers two of these aspects: the bidding language and the allocation algorithm. First we consider which kinds of bids on combinations are allowed and how, i.e. in what language, they are speci ed. The basic tradeo is the expressibility of the language versus its simplicity. We consider and formalize several bidding languages and compare their strengths. We prove exponential separations between the expressive power of di erent languages, and show that one language, \OR-bids with phantom items", can polynomially simulate the others. We then consider the problem of determining the best allocation { a problem known to be computationally intractable. We suggest an approach based on Linear Programming (LP) and motivate it. We prove that the LP approach nds an optimal allocation if and only if prices can be attached to single items in the auction. We pinpoint several classes of auctions where this is the case, and suggest greedy and branch-andbound heuristics based on LP for other cases.

Equilibrium in Sealed High Bid Auctions

Abstract: There is a voluminous theoretical literature on sealed high-bid auctions (auctions in which bids are sealed and the high bidder pays his bid). See for example, Vickrey (1961), Myerson (1981), Riley and Samuelson (1981), Milgrom and Weber (1982), Matthews (1983), Maskin and Riley (1984), Holt (1980), Cox, Smith and Walker (1988). A critical property on which this literature relies is the existence of equilibrium in which buyers' bidding strategies are monotonic in their types. This enables the analyst to perform comparative statics as the distribution of types changes, and to compare the welfare properties of the high-bid auction with those of other auction institutions. One case in which the existence of monotonic equilibrium is readily established is that in which buyers' types are distributed smoothly, independently and symmetrically. In this case, there exists a symmetric equilibrium one in which all bidders share the same bidding behaviour as a function of their valuations and this bid function is the solution to a first-order differential equation.

Iterative Combinatorial Auctions: Theory and Practice

Abstract: Combinatorial auctions, which allow agents to bid directly for bundles of resources, are necessary for optimal auction-based solutions to resource allocation problems with agents that have non-additive values for resources, such as distributed scheduling and task assignment problems. We introduce iBundle, the first iterative combinatorial auction that is optimal for a reasonable agent bidding strategy, in this case myopic best-response bidding. Its optimality is proved with a novel connection to primal-dual optimization theory. We demonstrate orders of magnitude performance improvements over the only other known optimal combinatorial auction, the Generalized Vickrey Auction.

Strategic bidding in competitive electricity markets: a literature survey

Abstract: Participants in a competitive electricity market develop bidding strategies in order to maximize their own profits. On the other hand, it is necessary for regulators to investigate strategic bidding behavior in order to identify possible market power abuse and to limit such abuse by introducing appropriate market management rules. An interesting body of work has been done on this subject, and this paper presents a literature survey based on more than 30 research publications.

A Study of Collusion in First-Price Auctions

Abstract: This paper examines the bidding for school milk contracts in Florida and Texas during the 1980s. In both states firms were convicted of bid-rigging. The data and legal evidence suggest that the cartels in the two states allocate contracts in different ways: One cartel divides the market among members, while the other cartel also uses side payments to compensate members for refraining from bidding. We show that both forms of cartel agreements are almost optimal, provided the number of contracts is sufficiently large. In the auction the cartel bidder may face competition from non-cartel bidders. The presence of an optimal cartel induces an asymmetry in the auction. The selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non-cartel bidder. The data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels.

An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market

Abstract: A major concern in the design of wholesale electricity markets is the potential for the exercise of market power by generating unit owners. To better understand the determinants of generating unit owner market power and how it is exercised, this paper derives a model of bidding behavior in a competitive electricity market which incorporates various sources of uncertainty and the impact of the electricity generator's position in the financial hedge contract market on its expected profit-maximizing bidding behavior. The model is first used to characterize the profit-maximizing market price that a generator would like set by its bidding strategy for several hedge contract and spot sales combinations. This model is applied to bid and contract data obtained from the first three months of operation of the National Electricity Market (NEM1) in Australia. This analysis illustrates the sensitivity of expected profit-maximizing bidding strategies to the amount of financial hedge contracts held by the generating uni...

Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions

Abstract: Internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce. We examine a dataset of eBay coin auctions to explore features of online bidding and selling behavior. We find that profit margins for bidders are slim on average, that previous experience does not play a significant role in observed bidding behavior and that bidding activity is concentrated at the end of the auction. We then develop new econometric techniques to estimate a structural model of bidding to address three main issues. First, we measure the extent of the winner's curse. We find that for a representative auction in our sample, a bidder's expected profits fall by 3.2 percent when the expected number of bidders increases by one. Second, we document that costly entry is a key component in understanding observed bidding behavior. For a representative auction in our sample, a bidder requires $3.20 of expected profit to enter the auction. Third, we study the seller's choice of reserve prices. We find that items with higher book value tend to be sold using a secret reserve price with a low minimum bid. We find that this is, to a first approximation, consistent with maximizing behavior.

Collusive Bidding: Lessons from the FCC Spectrum Auctions

Abstract: The Federal Communications Commission (FCC) spectrum auctions use a simultaneous ascending auction design. Bidders bid on numerous communication licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to bid higher on any license. With full revelation of bidding information, simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. These strategies can help bidders coordinate a division of the licenses, and enforce the proposed division by directed punishments. We examine solutions to mitigate collusive bidding in the spectrum auctions, and then apply these ideas to the design of daily electricity auctions.

Model-Based Comparisons of Pool and Bilateral Markets for Electricity

Abstract: A variety of market mechanisms have been proposed and implemented around the world in order to create competitive electricity pools and exchanges. However, it is an open question whether pool-based daily auctions or continuous bilateral trading deliver different prices under conditions of market power. In this paper we present a computationally intensive simulation model of the wholesale electricity market in England and Wales to isolate and systematically test the potential impact of alternative trading arrangements on electricity prices. After eight years of trading under a pool-based system, proposals were initiated in 1998 to change the market in England and Wales to bilateral trading. This paper uses an agent-based simulation to evaluate two important aspects of that proposal. The results show that daily bidding with Pay SMP settlement, as in the original Pool day-ahead market, produces the lowest prices while hourly bidding with Pay Bid settlement, as proposed for the bilateral model, produces the highest prices.

Reputation in an Internet Auction Market

Abstract: We investigate how seller reputation affects bidding activity in an Internet auction market. We find that bidders reward higher reputation sellers with higher prices. Sellers have incentive to invest in reputation despite noise due to the ability of participants to shed reputations using cheap pseudonyms and disincentives to report negative outcomes. The market thrives in spite of unobservable products and relatively high contract enforcement costs. The specific feedback of participants suggests that high seller reputation signals preferred traits including delivery efficiency, product description accuracy, advertised service accuracy, and post-auction communication. Overall, the data provide empirical support suggesting that the reputation measure and accompanying feedback align the interests of buyers with economically motivated sellers.

Optimal electricity supply bidding by Markov decision process

Abstract: The bidding decision making problem is studied from a supplier's viewpoint in a spot market environment. The decision-making problem is formulated as a Markov decision process-a discrete stochastic optimization method. All other suppliers are modeled by their bidding parameters with corresponding probabilities. A systematic method is developed to calculate transition probabilities and rewards. A simplified market clearing system is also included in the implementation. A risk-neutral decision-maker is assumed, the optimal strategy is calculated to maximize the expected reward over a planning horizon. Simulation cases are used to illustrate the proposed method.

Project flexibility, agency, and competition : new developments in the theory and application of real options

Abstract: 1. (Introduction) Real Options Analysis: Development and New Contributions PART I: OPTIMAL CONTINGENT POLICIES AND THE VALUE OF FLEXIBILITY 2. Real Options and Rules of Thumb in Capital Budgeting 3. Investment in Flexible Technologies under Uncertainty 4. Expandability, Reversibility, and Optimal Capacity Choice 5. Entry and Exit Strategies under Non-Gaussian Distributions 6. Evaluating Research and Development Investments PART II: AGENCY, CONTRACTS, AND INCENTIVES 7. A Self-Enforced Dynamic Contract for Processing of Natural Resources 8. Bidding for the Antamina Mine: Valuation and Incentives in a Real Options Context 9. Agency, Costs, Underinvestment, and Optimal Capital Structure: The Effect of Growth Options to Expand PART III: FLEXIBILITY IN NATURAL AND ENVIRONMENTAL RESOURCE INVESTMENTS 10. Valuation of Natural Resource Investments with Stochastic Conscience Yields and Interest Rates 11. A Compound Option Model for Evaluating Multi-Stage Natural Resource Investments 12. Optimal Extraction of Nonrenewable Resources when Costs Cumulate 13. Real Options and the Timing of Emission Limits under Ecological Uncertainty PART IV: STRATEGIC OPTIONS AND PRODUCT MARKET COMPETITION 14. Competitive Investment Decisions: A Synthesis 15. Equilibrium Time To Build: A Real Options Approach 16. Strategic Sequential Investments and Sleeping Patents 17. The Ship Lay-Up Option and Equilibrium Freight Rates

Experts and Amateurs: The Role of Experience in

Abstract: The use of auctions as a pricing mechanism has grown dramatically over the last few years. The introduction of electronic auctions has significantly widened the pool of consumers who participate in auctions and increased the number of companies attempting to sell their products in an auction format. Previous empirical research on auctions has focused almost exclusively on the behavior of professional bidders in high stakes common value auctions or the behavior of students in laboratory experiments. We collect data on a large number of electronic auctions, across four product categories, to explore the behavior of consumers bidding in a real marketplace. In particular, we focus on the role experience plays in their bidding behavior to uncover whether consumer learning drives the bidding process towards outcomes described in the theoretical literature on auctions. We find that experience docs indeed lead to behavior which is more consistent with theory although the proportion of experienced bidders who behave in a manner inconsistent with theory remains quite large.

Experts and Amateurs: The Role of Experience in Internet Auctions

Abstract: The use of auctions as a pricing mechanism has grown dramatically over the last few years. The introduction of electronic auctions has significantly widened the pool of consumers who participate in auctions and increased the number of companies attempting to sell their products in an auction format. Previous empirical research on auctions has focused almost exclusively on the behavior of professional bidders in high stakes common value auctions or the behavior of students in laboratory experiments. We collect data on a large number of electronic auctions, across four product categories, to explore the behavior of consumers bidding in a real marketplace. In particular, we focus on the role experience plays in their bidding behavior to uncover whether consumer learning drives the bidding process towards outcomes described in the theoretical literature on auctions. We find that experience does indeed lead to behavior which is more consistent with theory although the proportion of experienced bidders who behave in a manner inconsistent with theory remains quite large.

A Theory of Auctions and Competitive Bidding II

Abstract: Forward (April, 1999): This paper was written in early 1982. On the basis of results from previous research, we had informally conjectured that sequential auctions of the types treated here would yield upward-drifting price sequences at equilibrium. The 1981 RCA transponder lease auction described in the introduction, and then-contemporary comments of Ashenfelter concerning the “afternoon effect” in wine auctions, challenged this conjecture. Clearly, a proof was needed, and we generated one for the case of sequential first-price auctions with winningbid announcements after each round. We wrote out the equilibrium-characterization and pricesequence proofs, and then sketched out what we thought might be analogous results for a variety of other auction formats.

Combinatorial auctions for supply chain formation

Abstract: Supply chain formation presents difficult coordination issues for distributed negotiation protocols. Agents must simultaneously negotiate production relationships at multiple levels, with important interdependencies among inputs and outputs at each level. Combinatorial auctions address this problem by global optimization over expressed offers to engage in compound exchanges. A one-shot combinatorial auction that optimizes the reported value of the bids results in optimal allocations with truthful bids. But autonomous self-interested agents have an incentive to bid strategically in an attempt to gain extra surplus. We investigate a particular combinatorial protocol consisting of a one-shot auction and a strategic bidding policy. We experimentally analyze the efficiency and producer surplus obtained in five networks, and compare this performance to that of a distributed, progressive auction protocol with non-strategic bidding. We find that producers can sometimes gain significantly by bidding strategically. However, when the available surplus is small relative to the consumers’ values, the producers’ strategic behavior may prevent the supply chain from forming at all, resulting in zero gains for all agents. We examine the robustness of the combinatorial protocol by investigating agent incentives to deviate, identifying quasi-equilibrium behavior for an example network.

A profit-based unit commitment GA for the competitive environment

Abstract: As the electrical industry restructures, many of the traditional algorithms for controlling generating units need modification or replacement, previously utilized to schedule generation units in a manner that minimizes costs while meeting all demand, the unit commitment (UC) algorithm must be updated A UC algorithm that maximizes profit will play an essential role in developing successful bidding strategies for the competitive generator Simply bidding to win contracts is insufficient; bidding strategies must result in contracts that, on average, cover the total generation costs No longer guaranteed to be the only electricity supplier, a generation company's share of the demand will be more difficult to predict than in the past Removing the obligation to serve softens the demand constraint In this paper the authors provide a price/profit-based UC formulation which considers the softer demand constraint and allocates fixed and transitional costs to the scheduled hours The authors describe a genetic algorithm solution to this new UC problem and present results for an illustrative example

eMediator: a next generation electronic commerce server

Abstract: This paper presents eMediator, an electronic commerce server prototype that demonstrates ways in which algorithmic support and game-theoretic incentive engineering can jointly improve the efficiency of e-commerce. eAuctionHouse, the configurable auction server, includes a variety of generalized combinatorial auctions and exchanges, pricing schemes, bidding languages, mobile agents, and user support for choosing an auction type. We introduce two new logical bidding languages for combinatorial markets: the XOR bidding language and the ORof-XORs bidding language. Unlike the traditional OR bidding language, these are fully expressive. They therefore enable the use of the Clarke-Groves pricing mechanism for motivating the bidders to bid truthfully. eAuctionHouse also supports supply/demand curve bidding. eCommitter, the leveled commitment contract optimizer, determines the optimal contract price and decommitting penalties for a variety of leveled commitment contracting mechanisms, taking into account that rational agents will decommit strategically in Nash equilibrium. It also determines the optimal decommitting strategies for any given leveled commitment contract. eExchangeHouse, the safe exchange planner, enables unenforced anonymous exchanges by dividing the exchange into chunks and sequencing those chunks to be delivered safely in alternation between the buyer and the seller.

Key Factors in Bid Reasoning Model

Abstract: The bidding decision is a complex problem affected by numerous factors. The current study collected a list of determining factors from the results of past research and opinions of six experienced practitioners in competitive bidding. Based on these factors, a bid reasoning model was established to go deeply into the bid decision process. Differing from other earlier work, this model-oriented study focuses on the effects of the determining factors on four reasoning subgoals: competition, risk, company's position in bidding, and need for work. Their different contributions to each reasoning subgoal were reviewed under three main construction procurement methods, namely, unit rate contract, lump sum contract, and design/build contract. The Analytic Hierarchy Process technique was applied in this study. A survey questionnaire was developed with four hierarchies being formulated respectively for the four reasoning subgoals. The survey was conducted in two steps, the pilot survey among the six experienced pract...

Approaches to winner determination in combinatorial auctions

Abstract: Combinatorial auctions, i.e., auctions where bidders can bid on combinations of items, tend to lead to more efficient allocations than traditional auctions in multi-item auctions where the agents' valuations of the items are not additive. However, determining the winners so as to maximize revenue is NP -complete. First, existing approaches for tackling this problem are reviewed: exhaustive enumeration, dynamic programming, approximation algorithms, and restricting the allowable combinations. Then, we overview our new search algorithm for optimal anytime winner determination. By capitalizing on the fact that the space of bids is necessarily sparsely populated in practice, it enlarges the envelope of input sizes for which combinatorial auctions are computationally feasible. Finally, we discuss eMediator, our electronic commerce server that implements several techniques for automatically facilitating commerce, including an auction house with generalized combinatorial auctions. To our knowledge, our implementation is the first Internet auction to support combinatorial auctions, bidding via graphically drawn price–quantity graphs, and by mobile agents.

Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet

Abstract: There is a great deal of late bidding on internet second price auctions. We show that this need not result from either common value properties of the objects being sold, or irrational behavior: late bidding can occur at equilibrium even in private value auctions. The reason is that very late bids have a positive probability of not being successfully submitted, and this opens a way for bidders to implicitly collude, and avoid bidding wars, in auctions such as those run by eBay, which have a fixed end time. A natural experiment is available because the auctions on Amazon, while operating under otherwise similar rules, do not have a fixed end time, but continue if necessary past the scheduled end time until ten minutes have passed without a bid. The strategic differences in the auction rules are reflected in the auction data by significantly more late bidding on eBay than on Amazon. Futhermore, more experienced bidders on eBay submit late bids more often than do less experienced bidders, while the effect of experience on Amazon goes in the opposite direction. On eBay, there is also more late bidding for antiques than for computers. We also find scale independence in the distribution over time of bidders' last bids, of a form strikingly similar to the deadline effect' noted in bargaining: last bids are distributed according to a power law. The evidence suggests that multiple causes contribute to late bidding, with strategic issues related to the rules about ending the auction playing an important role.

Method and apparatus for an electronic marketplace for services having a collaborative workspace

Abstract: A method and system for buying and selling services online includes a process for custom services, a commodity process and a collaborative workspace on a website (102). The process for custom services includes the posting by a buyer (104) of specific criteria for a desired service, the bidding by a seller (106) to perform the service, and the selection of a seller by the buyer. The commodity process includes the posting by a seller of a service offering, the posting by the buyer of requirements for the purchase of the service offering, and the purchase of a service offering by the buyer. The commodity process may also include an optimization process that provides the buyer with an optimized list of service offerings. The collaborative workspace includes communication tools (302), a file structure (304), workbenches (306) and project management tools (308) used by the buyer and seller for facilitating the setup, development and release of one or more services.

Project specific communications system and method

Abstract: The present invention relates to systems for providing enhanced communications for the managing of projects, particularly to project communications involving multiple resource providers. The invention provides for a network accessed business system and database. The system permits parallel public, limited, and proprietary access to database information for the purpose of establishing and managing projects requiring multiple, and potentially competitive, resource providers. The invention specifically provides for the exchange of information required between project owners, project managers, and competitive, bidding resource providers necessary to assemble and manage both materiel and an effective project team.

Method and system for differential index bidding in online auctions

Abstract: A method and system for conducting electronic online auctions between a plurality of potential bidders using differential index bidding is disclosed. The originator of the auction specifies one or more indexes as the basis for establishing a competitive price point. The index can be a published market index, or a proprietary price array developed by the buyer. The bidders specify bids as a percentage or absolute amount off of the one or more indexes. The originator of the auction compares the submitted bids and provides feedback to the bidders.

Collusive Bidding in the FCC Spectrum Auctions

Abstract: This paper describes the signaling that occurred in many of the FCC spectrum auctions. The FCC's simultaneous ascending auctions allowed bidders to bid on numerous communication licenses simultaneously, with bidding remaining open on all licenses until no bidder was willing to raise the bid on any license. Simultaneous open bidding allowed bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This "code bidding" occurs when one bidder tags the last few digits of its bid with the market number of a related license. Such bids can help bidders coordinate a division of the licenses, and enforce the proposed division through targeted punishments. Often the meaning of a bid is clear without attaching a market number in the trailing digits. Such a "retaliating bid" need not end in a market number to warn off a rival from a contested market. We examine how extensively bidders signaled each other with retaliating bids and code bids in the DEF-block PCS spectrum auction held from August 1996 through January 1997. We find that only a small fraction of the bidders commonly used these signals. The price differences between those markets where signaling did and did not occur were negligible. However, bidders that used these collusive bidding strategies won more than 40% of the spectrum for sale and paid significantly less for their overall winnings, suggesting that the indirect losses from code bidding and retaliation may be large.

Bid costs and endogenous bid caps

Abstract: We study contests where several privately informed agents bid for a price. All bidders bear a cost of bidding that is an increasing function of their bids, and, moreover, bids may be capped. We show that, regardless of the number of bidders, if agents have linear or concave cost functions then setting a bid cap is not profitable for a designer who wishes to maximize the average bid. On the other hand, if agents have convex cost functions (i.e. an increasing marginal cost) then affectively capping the bids is profitable for a designer facing a sufficiently large number of bidders.

The Price of Options Illiquidity

Abstract: The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique data set which allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the non-tradable options are priced about 21 percent less than the exchange traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.

System and method for conducting a time auction

Abstract: A system and a method of conducting a time-auction among queuing customers is described. A bid is received from one of the queuing customers and compared with the prices being offered by the other customers waiting in line. If the bid is higher than at least one of the prices, the bidding customer is advanced in line ahead of the customer offering the lower price. The system and method provide a mechanism for customers willing to pay more to advance in the queue and to move ahead of those not willing to pay as much. At the same time, the system and method allow vendors such as service providers, for whose good or services customers are willing to wait in line, to maximize the price charged for their services at any given moment.

The Discrete-choice Willingness-to-pay Question Format in Health Economics:: Should We Adopt Environmental Guidelines?

Abstract: The use of willingness to pay (WTP) in valuing the benefits of health care programs is increasing. Although such values have been derived using open-ended, bidding, or payment-card techniques, recently discrete-choice questionnaires have been advocated, particularly following the report of the National Oceanographic and Atmospheric Administration concerning the validity of using WTP to estimate environmental benefits. It is argued that discrete-choice questions offer a more realistic market, and will therefore lead to more valid responses and yield higher response rates through reduced mental demands. The author reviews these issues in a critical assessment of discrete-choice questions.