Showing papers on "Bidding published in 2001"

The Optimal Allocation of Prizes in Contests

Abstract: We study a contest with multiple (not necessarily equal) prizes. Contestants have private information about an ability parameter that affects their costs of bidding. The contestant with the highest bid wins the first prize, the contestant with the second-highest bid wins the second prize, and so on until all the prizes are allocated. All contestants incur their respective costs of bidding. The contest's designer maximizes the expected sum of bids. Our main results are: 1) We display bidding equlibria for any number of contestants having linear, convex or concave cost functions, and for any distribution of abilities. 2) If the cost functions are linear or concave, then, no matter what the distribution of abilities is, it is optimal for the designer to allocate the entire prize sum to a single ''first'' prize. 3) We give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function.

Optimal bidding strategies and modeling of imperfect information among competitive generators

Abstract: The emerging electricity market behaves more like an oligopoly than a perfectly competitive market due to special features such as, a limited number of producers, large investment size (barrier to entry), transmission constraints, and transmission losses which discourage purchase from distant suppliers. This makes it practicable for only a few independent power suppliers to service a given geographic region and in this imperfect market each power supplier can increase its own profit through strategic bidding. The profit of each supplier is influenced to varying extents by differences in the degree of imperfection of knowledge of rival suppliers. A new framework to build bidding strategies for power suppliers in an electricity market is presented in this paper. It is assumed that each supplier bids a linear supply function, and that the system is dispatched to minimize customer payments. Each supplier chooses the coefficients in the linear supply function to maximize benefits, subject to expectations about how rival suppliers will bid. A stochastic optimization formulation is developed and two methods proposed for describing and solving this problem. A numerical example serves to illustrate the essential features of the approach and the results are used to investigate the potential market power.

Price Formation in Double Auctions

Abstract: We develop a model of information processing and strategy choice for participants in a double auction. Sellers in this model form beliefs that an offer will be accepted by some buyer. Similarly, buyers form beliefs that a bid will be accepted. These beliefs are formed on the basis of observed market data, including frequencies of asks, bids, accepted asks, and accepted bids. Then traders choose an action that maximizes their own expected surplus. The trading activity resulting from these beliefs and strategies is suffcient to achieve transaction prices at competitive equilibrium and complete market effciency after several periods of trading.

Mega-events and host-region impacts: Determining the true worth of the 1999 Rugby World Cup

Abstract: An increasing interest in the impact of sporting mega-events on host regions has sparked discussion on the most appropriate approaches in determining both benefits and costs. The paper defines the nature of the impact on Wales of the 1999 Rugby World Cup (RWC99), both economic and social, and qualitatively assesses the extent and nature of the impact of RWC99 in a number of areas. It concludes that there were considerable benefits for the region, although many areas of potential benefit were not maximised. This was due in large part to the structure of the bidding process and organisational inadequacies, which in turn led to relatively low spectator spend and mixed press coverage.

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

Abstract: 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.

Bidding languages for combinatorial auctions

Abstract: Combinatorial auctions provide a valuable mechanism for the allocation of goods in settings where buyer valuations exhibit complex structure with respect to substitutabilityand complementarity. Most algorithms are designed to work with explicit bids for concrete bundles of goods. However, logical bidding languages allow the expression of complex utility functions in a natural and concise way. We introduce a new, generalized language where bids are given by propositional formulae whose subformulae can be annotated with prices. This language allows bidder utilities to be formulated more naturally and concisely than existing languages. Furthermore, we outline a general algorithmic technique for winner determination for auctions that use this bidding language.

Achieving budget-balance with Vickrey-based payment schemes in exchanges

Abstract: Generalized Vickrey mechanisms have received wide attention in the literature because they are efficient and strategy-proof, i.e. truthful bidding is optimal whatever the bids of other agents. However it is well-known that it is impossible for an exchange, with multiple buyers and sellers, to be efficient and budget-balanced, even putting strategy-proofness to one side. A market-maker in an efficient exchange must make more payments than it collects. We enforce budget-balance as a hard constraint, and explore payment rules to distribute surplus after an exchange clears to minimize distance to Vickrey payments. Different rules lead to different levels of truth-revelation and efficiency. Experimental and theoretical analysis suggest a simple Threshold scheme, which gives surplus to agents with payments further than a certain threshold value from their Vickrey payments. The scheme appears able to exploit agent uncertainty about bids from other agents to reduce manipulation and boost allocative efficiency in comparison with other simple rules.

New Buyers' Arrival Under Dynamic Pricing Market Microstructure: The Case of Group-Buying Discounts on the Internet

Abstract: Dynamic pricing mechanisms occur on the Internet when buyers and sellers negotiate the final transaction price for the exchange of goods or services. These mechanisms are used in online auctions (e.g., eBay.com, uBid.com) and name-your-own-price (Priceline.com) formats, for example. The current research studies the dynamics of one instance of dynamic pricing - group-buying discounts - used by MobShop.com, whose products' selling prices drop as more buyers place their orders. We collect and analyze changes in the number of orders for MobShop-listed products over various periods of time, using an econometric model that reflects our understanding of bidder behavior in the presence of dynamic pricing and different levels of bidder participation. We find that the number of existing orders has a significant positive effect on new orders placed during each three-hour period, indicating the presence of a positive participation externality effect. We also find evidence for expectations of falling prices, a price drop effect. This occurs when the number of orders approaches the next price drop level and the price level for transacting will fall in the near future. The results also reveal a significant ending effect, as more orders were placed during the last three-hour period of the auction cycles. We also assess the efficacy of group-buying business models to shed light on the recent failures of many group-buying Web sites.

Increasing Competition and the Winner's Curse: Evidence from Procurement

Abstract: We empirically measure the effects of increasing competition on equilibrium bidding in procurement auctions In common-value auctions the winner's curse counsels more conservative bidding as the number of competitors increases First we estimate the structural parameters of an equilibrium bidding model and test for the importance of common-value components in bidders' preferences Second we use these estimates to calculate the effects of increasing competition on both individual bids as well as winning bids ie procurement costs We analyze bid data from construction procurement auctions run by the New Jersey transportation department Our results indicate that for a large subset of these auctions the median procurement cost rises as competition intensifies: increasing the number of bidders from 3 to 6 raises median procurement costs by about 15% In this setting then asymmetric information overturns the common economic wisdom that more competition is always desirable

Bidding method for internet/wireless advertising and priority ranking in search results

Abstract: The present invention concerns a bidding method used to prioritize advertising and search result listings delivered to users of the Internet and Internet related devices and services. Listing entities such as advertisers bid on lower level target points (key words) at a list service provider. The list service provider defines a set of upper level target points available for correlation to the lower level target points that are the subject of the listing entity's bid. The target points when combined with a value of a bid comprise a handle. When correlated to upper level target points, the value of the combined handles of the lower level target points form the value for the handles of the upper level target points. In this manner, the present invention creates additional meaning and context to a given bid. A listing entity need not discover or select every term that may be useful—the list service provider performs all or some of this correlating service. The listing entity is enabled to leverage the value of bids by passively bidding on further correlated target points.

Least-Present-Value-Of-Revenue Auctions and Highway Franchising

Abstract: In this paper we show that fixed-term contracts, which are commonly used to franchise highways, do not allocate demand risk optimally. We characterize the optimal risk sharing contract and show that it can be implemented with a fairly straightforward mechanism---an LPVR auction. Instead of bidding on tolls (or franchise lengths), as in the case of fixed term franchises, in an LPVR auction the bidding variable is the present values of toll revenues. The lowest bid wins and the franchise ends when that amount has been collected. We also show that the welfare gains that can be attained by replacing fixed-term auctions with LVPR auctions are substantial.

Case-based reasoning approach in bid decision making

Abstract: Since contractors' bidding behaviors are affected by numerous factors related both to the specific features of the project and dynamically changed situations, bidding decision problems are highly unstructured. No clear rules can be found in delivering a bidding decision. In this problem domain, decisions are commonly made based upon intuition and past experience. Case-based reasoning (CBR) is a subbranch of artificial intelligence. It solves new problems by matching against similar problems that have been encountered and resolved in the past. It is a useful tool in dealing with complex and unstructured problems, which are difficult if not impossible to be theoretically modeled. This paper presents a case-based reasoning bidding system that helps contractors with the dynamic information varying with the specific features of the job and the new situation. In this system, bid cases are represented by sets of attributes derived from a preliminary survey of several experienced bidders, focusing, respectively, on two reasoning subgoals: (1) Risk; and (2) competition. Through the system, similar cases can be retrieved to assess the possible level of competition and risk margin. A hypothetical example is explained and evaluated to demonstrate the feasibility of the method. The effectiveness of this system is tested by a Monte Carlo simulation in comparison to the conventional statistical method.

Coveted or Overlooked? The Psychology of Bidding for Comparable Listings in Digital Auctions

Abstract: This article elaborates on, and provides evidence of the herd behavior bias -- the tendency to gravitate toward, and bid for, auction listings with one or more existing bids, ignoring comparable or even more attractive unbid-for listings available at the same time -- exhibited by buyers in digital auctions. Some listings attract many bidders and become “coveted”, the center of bidding attention, while other equivalent or even superior listings are “overlooked”, receiving no bids at all. Empirical analysis using data from digital auctions across different product categories shows that this herd behavior bias is attenuated with increasing bid price, but increases with the difficulty of evaluating quality. The practical implications of these findings, and promising research opportunities in this area are also discussed.

High-performance bidding agents for the continuous double auction

Abstract: We develop two bidding algorithms for real-time Continuous Double Auctions (CDAs) using a variety of market rules that offer what we believe to be the strongest known performance of any published bidding strategy. Our algorithms are based on extensions of the "ZIP" (Cliff, 1997) and "GD" (Gjerstad and Dickhaut, 1998) strategies: we have made essential modifications to these strategies which enable trading multiple units in real-time markets. We test these strategies against each other and against the sniping strategy of (Rust et al., 1992) and the baseline "Zero Intelligence" strategy of (Gode and Sunder, 1992), using both a discrete-time simulator and a genuine real-time multi-agent environment called MAGENTA (Das et al., 2001). Under various market rules and limit price distributions, our modified Gjerstad-Dickhaut ("MGD") strategy outperforms the original GD, and generally ominates the other strategies.

Paid search engine bid management

Abstract: A method and apparatus for improving efficiencies in the current paid search engine keyword bidding market and optimizing use of use of such engines. The system accumulates bid amounts for a plurality of target keywords at one or more paid search engines and presents bid amounts to a user enabling the user to evaluate and optimize bids on those keywords. Bid amounts of keywords of interest are highlighted (302). Differential bids can be identified to optimize bids. Keyword bid changes are monitored to identify changes of interest to a potential bidder (306).

Comparing competition and collusion: a numerical approach

Abstract: Collusion is a serious problem in many procurement auctions. In this research, I study a model of first price sealed bid procurement auctions with asymmetric bidders. I demonstrate that the equilibrium to the model is unique and describe three algorithms that can be used to compute the inverse equilibrium bid functions. I then use the computational algorithms to compare competitive and collusive bidding. The algorithms are useful for structural estimation of auction models and for assessing the damages from bid-rigging.

Efficiency of Large Private Value Auctions

Abstract: We consider discriminatory and uniform price auctions for multiple identical units of a good. Players have private values, possibly asymmetrically distributed and for multiple units. Our setting allows for aggregate uncertainty about demand and supply. In this setting, equlibria generally will be inefficient. Despite this, we show that such auctions become arbitrarily close to efficient if they are “large,” and use this to derive an asymptotic characterization of revenue and bidding behavior.

Autonomous bidding agents in the trading agent competition

Abstract: Designing agents that can bid in online simultaneous auctions is a complex task. The authors describe task-specific details and strategies of agents in a trading agent competition. More specifically, the article describes the task-specific details of and the general motivations behind, the four top-scoring agents. First, we discuss general strategies used by most of the participating agents. We then report on the strategies of the four top-placing agents. We conclude with suggestions for improving the design of future trading agent competitions.

Uniform Pricing or Pay-as-Bid Pricing: A Dilemma for California and Beyond

Abstract: Any belief that a shift from uniform to as-bid pricing would provide power purchasers substantial relief from soaring prices is simply mistaken. The immediate consequence of its introduction would be a radical change in bidding behavior that would introduce new inefficiencies, weaken competition in new generation, and impede expansion of capacity.

An Ordinal Optimization-Based Bidding Strategy for Electric Power Suppliers in the Daily Energy Market

Abstract: The deregulation and reconstruction of the electric power industry worldwide raises many challenging issues related to the economic and reliable operation of electric power systems. Traditional unit commitment or hydrothermal scheduling problems have been integrated with generation resource bidding, but the development of optimization based bidding strategies is only at a very preliminary stage. This paper presents a bidding strategy based on the theory of ordinal optimization that the ordinal comparisons of performance measures are robust with respect to noise and modeling error, and the problems become much easier if the optimization goal is softened from asking for the "best"" to "good enough" solution. The basic idea is to use an approximate model that describes the influence of bidding strategies on the market clearing prices (MCP). A nominal bid curve is obtained by solving optimal power generation for a given set of MCPs via Lagrangian relaxation. Then N bids are generated by perturbing the nominal bid curve. The ordinal optimization method is applied to isolate a good enough set S that contains some good bids with high probability by performing rough evaluation. The best bid is then selected by solving full hydrothermal scheduling or unit commitment problems for each of the bids in S. Using ordinal optimization approach we are able to obtain a good enough bidding strategy with reasonable computational effort. Numerical results using historical MCPs from the California market and a generation company with 10 units show that the ordinal optimization based method is efficient.

Gaming and Price Spikes in Electric Power Markets

Abstract: Many challenging issues arise under the newly deregulated competitive electric power markets. Instead of centralized decision-making in a vertically integrated environment as in the past, decision-making is now decentralized and driven by market forces. Gaming and price spikes have been observed in almost every electricity market but explicit analysis of these phenomena is rare. In this paper, the authors study historical bidding behavior to see how power suppliers and demand service providers were actually bidding in the California day-ahead energy market. Based on their observations, they formulate a Prisoner's dilemma matrix game and introduce the notion of "opportunistic tacit collision" to explain strategic bidding behaviors in which suppliers withhold generation capacity from the market to drive up prices. This explanation is applicable with or without market power, transmission constraints, and insufficient supply, and is only enhanced by these factors. Their analysis is generally applicable to any uniform price electricity market in which there is significant insensitivity to price on the demand side.

System and method for effectively conducting transactions between buyers and suppliers

Abstract: A web-based service that facilitates communications and commercial transactions between buyers and suppliers, including the efficient distribution of a buyer's request-for-quotations (RFQs) to an audience of that buyer's preferred suppliers, and the automatic and efficient handling of supplier quotations in a variety of bidding formats that are communicated back to the buyer for selection of a winning bid. After selection of the winning bid, a server device generates communications for enabling the buyer and winning supplier to enter into a contract for completing the commercial transaction.

Auctions of companies

Abstract: ROBERT G. HANSEN [*] Auctions of companies are conducted in ways that contradict received auction theory The major puzzles are: (1) sellers restrict the number of bidders; (2) sellers restrict the number of bidders; (3) bidders are screened by an initial round of nonbinding bids; and (4) bidders offer--and sellers sometimes accept--preemptive bids. Puzzles (1), (2), and (4) are explained by assuming that some information concerning the company can, if released, reduce the value of the company. Puzzle (3) is explained as a way for sellers to select the highest-valued bidders; equilibrium is maintained by using the initial bids to set a reserve price for the final bidding round. (JEL D44, D82, G34) I. INTRODUCTION From 1989 to 1998, 19,593 private companies were reported to be bought and sold in the United States, many through an auction process. The total value of these transactions was in excess of $315 billion. [1] In addition, from 1989 to 1998, there were 13,134 reported divestitures of divisions, subsidiaries, or product lines; the value of these transactions was in excess of $900 billion. Perhaps not surprisingly, an industry of advisors/auctioneers exists to facilitate these transactions, and the institutional framework by which auctions of companies are conducted has become somewhat standardized. The purpose of this article is to apply auction theory to explain this standardized institutional framework. The article proceeds as follows: section II describes the standardized process used for selling private companies or divisions of public companies; points out how these practices conflict with certain aspects of received auction theory; and presents initial arguments that explain the rationality of the practic es. In section III, a more formal model is developed to show how some of the standard corporate auction practices can be explained. Section IV deals with what may be the most intriguing institutional practice--the use of preliminary, nonbinding indications of interest. Section V concludes the article with a preliminary discussion of entry fees and preemptive bidding. II. THE "TYPICAL" AUCTION PROCESS AND CONSISTENCY WITH AUCTION THEORY The typical process for selling a private company or division of a public company runs as follows. [2] Upon making the decision to sell, the selling company will retain (or will already have retained) an advisor who will serve as de facto auctioneer. The auctioneer, drawing on knowledge of the selling company, will draw up a preliminary list of potential bidders; this list will probably include competitors, suppliers, customers, and acquisition-oriented conglomerates or leveraged buyout houses. The advisor will also exercise his judgment at this time as to whether or not a prospective bidder will be willing and able to complete a transaction at a "satisfactory" price. If a negative judgment is made, that potential bidder will likely be excluded from further participation. The remaining prospective bidders will receive a very cursory description of the selling company and will be offered a more in-depth offering memorandum if they sign a confidentiality agreement. Although the first cursory description may no t even include the selling company's name, the offering memorandum will be quite detailed, including the sort of information that would typically be in a public corporation's Securities and Exchange Commission 10K filing as well as traditionally confidential information on current issues at the selling company, overview of costs, plans for market and product developments, and so on. The next step is for the prospective bidders to submit preliminary, nonbinding "indications of interest" for the selling company. These indications will be either a number or a range of numbers that are supposed to represent "bidders' first approximations of their estimates of the value of the target." [3] The preliminary indications are then used by the auctioneer to further reduce the number of bidders who will proceed further: "Only the top bidders on their list are permitted to go forward" [4] Although the screening is clearly not as straightforward as the preceding passage presumes, there is no doubt that the likelihood of ad mittance to the next round increases with the preliminary bid--even though that bid is nonbinding. …

Electronic trading systems and methods

Abstract: Electronic trading systems and methods provide users with the opportunity to trade financial instruments such as equities, foreign exchange, bonds, and swaps. Swaps may be defined using specialized electronic swap term sheets. A user who proposes a swap may select other users and invite them to bid on the swap. The system may initiate an auction for a proposed swap. Bidding users may bid until the swap auction is complete. The swap may be confirmed, and swap terms downloaded to a user's risk management or back office software.