Showing papers on "Bidding published in 2004"

Economic Insights from Internet Auctions

Abstract: This paper surveys recent studies of internet auctions. Four main areas of research are summarized. First, we survey several studies that document and attempt to explain the frequently observed sniping, or last-second bidding behavior, in these auctions. Second, we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets, most notably due to the winner's curse. Third, we explore research about the role of reputation mechanisms installed to help combat these distortions. Finally, we discuss what internet auctions have to teach us about auction design.

Shareholder Wealth Effects of European Domestic and Cross-border Takeover Bids

Abstract: This paper analyses the short-term wealth effects of large intra-European takeover bids. We find announcement effects of 9% for the target firms compared to a statistically significant announcement effect of only 0.7% for the bidders. The type of takeover bid has a large impact on the short-term wealth effects with hostile takeovers triggering substantially larger price reactions than friendly operations. When a UK firm is involved, the abnormal returns are higher than those of bids involving both a Continental European target and bidder. There is strong evidence that the means of payment in an offer has an impact on the share price. A high market-to-book ratio of the target leads to a higher bid premium, but triggers a negative price reaction for the bidding firm. We also investigate whether the predominant reason for takeovers is synergies, agency problems or managerial hubris. Our results suggest that synergies are the prime motivation for bids and that targets and bidders share the wealth gains.

Handbook of quantitative supply chain analysis : modeling in the e-business era

Abstract: 1. Introduction Part I. Supply Chain Analysis-Models and Paradigms 2. Game Theoretic Applications in Supply Chain Analysis 3. Supply Chain Intermediation: A Bargaining Theoretic Paradigm 4. Decentralized Decision Making in Dynamic Technological Systems: The Principal-Agent Paradigm Part II. Auctions and Bidding 5. Auctions, Bidding and Exchange Design 6. Auction and Pricing in Electronic Marketplaces 7. Design of Combinatorial Auctions Part III. Supply Chain Operations in eBusiness 8. The Marketing-Operations Interfaces 9. Coordination of Pricing and Inventory Decisions: A Survey and Classification 10. Collaborative Forecasting and Its Impact on Supply Chain Performance 11. Available to Promise 12. Due Date Management Policies Part IV. Multi-Channel Coordination 13. Modeling Competition and Conflict in Multiple Channel Distribution Systems: A Review 14. Supply Chain Choice for Internet Retailers 15. Coordinating Traditional and Internet Channels Part V. Supply Networks, IT, and Financial Services 16. Using a Structural Equations Modeling Approach to Design and Monitor Strategic International Facility Networks 17. Integrated Production and Distribution Operations: Taxonomy, Models, and Review 18. Next Generation ERP Systems: Scalable and Decentralized Paradigms 19. Delivering e-Banking Services: An Emerging Internet Business Model and a Case Study

User heterogeneity and its impact on electronic auction market design: an empirical exploration

Abstract: While traditional information systems research emphasizes understanding of end users from perspectives such as cognitive fit and technology acceptance, it fails to consider the economic dimensions of their interactions with a system. When viewed as economic agents who participate in electronic markets, it is easy to see that users' preferences, behaviors, personalities, and ultimately their economic welfare are intricately linked to the design of information systems. We use a data-driven, inductive approach to develop a taxonomy of bidding behavior in online auctions. Our analysis indicates significant heterogeneity exists in the user base of these representative electronic markets. Using online auction data from 1999 and 2000, we find a stable taxonomy of bidder behavior containing five types of bidding strategies. Bidders pursue different bidding strategies that, in aggregate, realize different winning likelihoods and consumer surplus. We find that technological evolution has an impact on bidders' strategies. We demonstrate how the taxonomy of bidder behavior can be used to enhance the design of some types of information systems. These enhancements include developing user-centric bidding agents, inferring bidders' underlying valuations to facilitate real-time auction calibration, and creating low-risk computational platforms for decision making.

Tycoon: an Implementation of a Distributed, Market-based Resource Allocation System

Abstract: Distributed clusters like the Grid and PlanetLab enable the same statistical multiplexing efficiency gains for computing as the Internet provides for networking. One major challenge is allocating resources in an economically efficient and low-latency way. A common solution is proportional share, where users each get resources in proportion to their pre-defined weight. However, this does not allow users to differentiate the value of their jobs. This leads to economic inefficiency. In contrast, systems that require reservations impose a high latency (typically minutes to hours) to acquire resources. We present Tycoon, a market based distributed resource allocation system based on proportional share. The key advantages of Tycoon are that it allows users to differentiate the value of their jobs, its resource acquisition latency is limited only by communication delays, and it imposes no manual bidding overhead on users. We present experimental results using a prototype implementation of our design.

Combinatorial Auctions in the Procurement of Transportation Services

Abstract: Most shippers use annual auctions to procure transportation services, leading to annual contracts. By using combinatorial auctions they can reduce their operating costs while protecting carriers from winning lanes that do not fit their networks, thereby improving carriers' operations as well. Combinatorial auctions account for carriers' economies of scope, which many consider more important than economies of scale in transportation operations. Any transportation procurement procedure, however, must account for level of service and other nonprice variables, which are as important as price in determining which carrier should serve what lane. These considerations can be incorporated into the combinatorial auction framework easily and holistically. After several years of using this approach, leading shippers have adopted it, and several software providers offer the requisite software.

Bidding strategies for electricity producers in a competitive electricity marketplace

Abstract: This paper presents a methodology for the development of bidding strategies for electricity producers in a competitive electricity marketplace. Initially, the problem is modeled as a two level optimization problem where, at the first level, a market participant tries to maximize his expected profit under the constraint that, at the second level, an independent system operator dispatches power solving an optimal power flow problem that minimizes total system cost. It is assumed that each supplier bids a linear supply function and chooses his bidding strategy based on probabilistic estimates of demand and rival behavior. Monte Carlo simulation is used to calculate the expected profit and Genetic Algorithms are employed to find the optimal strategy. Subsequently, the formulation is expanded to account for different market participants' risk profiles. It is shown that risk aversion may influence the optimal bidding strategy of an individual.

Explaining M&A Success in European Banks

Abstract: We study 98 large M&As of European bidding banks from 1985to 2000 in order to investigate drivers of excess returns to the shareholders of the targets, the bidders, and to the combined entity of the bidder and the target. Our findings show that many of 13 drivers identified mostly from prior, US-focused research have significant explanatory power, indicating that the stock market reaction to M&A announcements of European bidding banks can be at least partly forecast. Our results are largely consistent with the US-experience and confirm the preference of stock markets for focused transactions and against diversification. Moreover, we find that less active bidders create more value than more active/experienced bidders. This stands in contrast to some US research and may indicate that managers of frequent European bidding banks may be motivated by other objectives than creating shareholder value.

Pumped-storage hydro-turbine bidding strategies in a competitive electricity market

Abstract: This paper develops optimal pumped-storage unit bidding strategies in a competitive electricity market. Starting from a weekly forecasted market clearing price curve, an algorithm to maximize the profit of a pumped-storage unit considering reserve bids is developed. A comparison between the optimal bidding strategy and a fixed-schedule weekly generating and pumping strategy is provided.

The Dynamics of Mergers and Acquisitions

Abstract: This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding shareholders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover.

Wasp-like Agents for Distributed Factory Coordination

Abstract: Agent-based approaches to manufacturing scheduling and control have gained increasing attention in recent years. Such approaches are attractive because they offer increased robustness against the unpredictability of factory operations. But the specification of local coordination policies that give rise to efficient global performance and effectively adapt to changing circumstances remains an interesting challenge. In this paper, we present a new approach to this coordination problem, drawing on various aspects of a computational model of how wasp colonies coordinate individual activities and allocate tasks to meet the collective needs of the nest. We focus specifically on the problem of configuring parallel multi-purpose machines in a factory to best satisfy product demands over time. Wasp-like computational agents that we call routing wasps act as overall machine proxies. These agents use a model of wasp task allocation behavior, coupled with a model of wasp dominance hierarchy formation, to determine which new jobs should be accepted into the machine's queue. If you view our system from a market-oriented perspective, the policies that the routing wasps independently adapt for their respective machines can be likened to policies for deciding when to bid and when not to bid for arriving jobs. We benchmark the performance of our system on the real-world problem of assigning trucks to paint booths in a simulated vehicle paintshop. The objective of this problem is to minimize the number of paint color changes accrued by the system, assuming no a priori knowledge of the color sequence or color distribution of trucks arriving in the system. We demonstrate that our system outperforms the bidding mechanism originally implemented for the problem as well as another related adaptive bidding mechanism.

Collars and Renegotiation in Mergers and Acquisitions

Abstract: I examine the motivation for, and effect of, including a collar in a merger agreement. The most important cross-sectional determinants of the bid structure (cash vs. stock, and whether to include a collar) are the market-related stock return standard deviations for the bidder and target. This evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market-related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder's offer changes materially relative to the value of the target during the bid period. AN IMPORTANT DECISION MADE during merger or takeover negotiations is the method of payment to be offered to target shareholders. Takeover bids can be made in cash and/or some combination of securities issued by the bidding firm. A considerable number of papers in the finance literature provide empirical evidence on the determinants of the choice between stock and cash as the method of payment, including Carleton et al. (1983), Niden (1986), Crawford (1987), Auerbach and Reishus (1988), Amihud, Lev, and Travlos (1990), Chaney, Lovata, and Philipich (1991), and Martin (1996). However, this literature typically ignores the increasing fraction (20% in recent years) of stock merger bids that contain a "collar." While an ordinary stock merger bid specifies the number of bidder shares offered as consideration for each target share (the exchange ratio), a collar bid provides for certain changes in the exchange ratio conditional on the level of the bidder's stock price around the effective date of the merger, often insulating target stockholders from volatility in the bidder's stock price and promising a cash-like payoff at the end of the bid period. Collar bids come in two basic forms. The first, which I call fixed-exchange (FEX), specifies a constant exchange ratio over a range of bidder stock prices, with adjustment to the ratio outside those bounds. An example of this type of transaction is the merger agreement announced on January 17, 1994, between

Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare? - eScholarship

Abstract: Increasingly, local governments compete by offering substantial subsidies to industrial plants to locate within their jurisdictions. This paper uses a novel research design to estimate the local consequences of successfully bidding for an industrial plant, relative to bidding and losing, on labor earnings, public finances, and property values. Each issue of the corporate real estate journal Site Selection includes an article titled The Million Dollar Plant that reports the county where a large plant chose to locate (i.e., the 'winner'), as well as the one or two runner-up counties (i.e., the 'losers'). We use these revealed rankings of profit-maximizing firms to form a counterfactual for what would have happened in the winning counties in the absence of the plant opening. We find that the plant opening announcement is associated with a 1.5% trend break in labor earnings in the new plant's industry in winning counties, as well as increased earnings in the same industry in counties that neighbor the winner. Further, there is modest evidence of increased expenditures for local services, such as public education. Property values may provide a summary measure of the net change in welfare, because the costs and benefits of attracting a plant should be capitalized into the price of land. If the winners and losers are homogeneous, a simple model suggests that any rents should be bid away. We find a positive, relative trend break of approximately 1.1-1.7% in property values. Since the winners and losers have similar observables in advance of the opening announcement, the property value results may be explained by heterogeneity in subsidies from higher levels of government (e.g., states) and/or systematic underbidding. Overall, the results undermine the popular view that the provision of local subsidies to attract large industrial plants reduces local residents' welfare.

On the existence of pure strategy monotone equilibria in asymmetric first-price auctions

Abstract: We establish the existence of pure strategy equilibria in monotone bidding functions in first-price auctions with asymmetric bidders, interdependent values, and affiliated one-dimensional signals. By extending a monotonicity result due to Milgrom and Weber (1982), we show that single crossing can fail only when ties occur at winning bids or when bids are individually irrational. We avoid these problems by considering limits of ever finer finite bid sets such that no two bidders have a common serious bid, and by recalling that single crossing is needed only at individually rational bids. Two examples suggest that our results cannot be extended to multidimensional signals or to second-price auctions.

Combinatorial Auctions in Procurement

Abstract: Making the “right” pricing decision in sales or procurement is a complex task. While the types of pricing policies/methods used in the exchange of goods and services vary greatly, we can divide these mechanisms under two broad categories: posted price mechanisms and price discovery mechanisms. Under a posted price mechanism, a good is sold at a take-it-or-leave-it price determined by the seller. A posted price can be dynamic, i.e., the seller may offer different prices to different customers (customized prices) or change prices dynamically over time (intertemporal prices). In a price discovery mechanism, prices are determined via a bidding process.

Optimal Bidding on Keyword Auctions

Abstract: Pay per click (PPC) auctions are used to sell positions in search engines. These auctions have gained increasing commercial importance, and many companies offer software to bid on these auctions. We present a trading agent for PPC auctions that is the first in our knowledge to use an explicit profit objective function. The agent creates a look-ahead plan of its desired bids, which allows it to exhibit intelligent behaviour including the ability to hold back money during expensive periods. We tested the agent in the latter part of 2003 in a live Overture auction. The agent generated four times the number of visits as human managers, in addition to reducing cost and variability.

Jump Bidding Strategies in Internet Auctions

Abstract: Abidding strategy commonly observed in Internet auctions is that of "jump bidding," or entering a bid larger than what is necessary to be a currently winning bidder. In this paper, we argue that the cost associated with entering online bids and the uncertainty about future entry--both of which distinguish Internet from live auctions--can explain this behavior. We present a simple theoretical model that includes the preceding characteristics, and derive the conditions under which jump bidding arises in a format commonly used for online trading, the ascending-price auction. We also present evidence, recorded from hundreds of Internet auctions, that is consistent with some of the basic predictions from our model. We find that jump bidding is more likely earlier in an auction, when jumping has a larger strategic value, and that the incentives to jump bid increase as competition increases. Our results also indicate that jump bidding is effective: Jump bidders place fewer bids overall, and increased early jump bidding deters entry later in the auction. We also discuss possible means of reducing bidding costs and evidence that Internet auctioneers are pursuing this goal.

Partial-Repeat-Bidding in the Name-Your-Own-Price Channel

Abstract: This paper presents an initial examination of an emerging business model, the Name-Your-Own-Price NYOP channel, as popularized by priceline.com. Focusing on how to optimally structure such market interactions, I ask whether it is more profitable to restrict individuals to a single bid, as is currently done by Priceline, or conversely, to allow consumers to continue bidding if the previous offer was rejected. I find that both market structures yield the same expected profit. In practice, a single-bid policy may not be perfectly enforceable, especially in the Internet environment, because a sophisticated user can circumvent such a policy by camouflaging one's identity or otherwise manipulating the bidding procedure. Thus, Priceline's single-bid restriction is likely to result in Partial-Repeat-Bidding, the case in which some consumers are limited to a single bid while other, sophisticated users may rebid. I ask whether such surreptitious bidding is detrimental to the NYOP firm and find that profits are lower than if such opportunistic behavior were absent. Surprisingly, I find that the impact of the number of repeat bidders on profits is not monotonic. Thus, if it is prohibitively costly or logistically infeasible for the NYOP firm to eliminate surreptitious rebidding behavior, the firm may, in fact, benefit from encouraging, rather than discouraging, users to rebid. The direction that increases profits depends on the percentage of sophisticated bidders.

Analytical model for analyzing construction claims and opportunistic bidding

Abstract: Construction claims are considered by many project participants to be one of the most disruptive and unpleasant events of a project. Construction claims occur for various reasons. There is a need to understand the dynamic nature between construction claims and opportunistic bidding. An analytical model, the Claims Decision Model ~CDM!, based on ''game theory,'' was developed to study opportunistic bidding and construction claims. This model explains ~1! how people behave during a potential or existing claiming situation, ~2! how different claiming situations are related to opportunistic bidding behavior, and ~3! what situations encourage or discourage opportunistic behavior. The results of this pilot study indicate that the equilibrium solution of a construction claim is to negotiate and settle, which concurs with most of the claim cases in the industry. The possible range of a negotiation settlement is obtained in this paper. The model provides the rationale for recent innovations to manage disputes. The model can also help project owners identify the possibility of opportunistic bidding, and can assist the project participants in analyzing construction claims.

Auctions, Bidding and Exchange Design

Abstract: Auctions have found widespread use in the last few years as a technique for supporting and automating negotiations on the Internet. For example, eBay now serves as a new selling channel for individuals, and small and big enterprises. Another use for auctions is for industrial procurement. In both these settings traditional auction mechanisms such as the English, Dutch, First (or Second) price Sealed-Bid auctions are now commonplace. These auctions types are useful for settings where there is a single unit of an item being bought/sold. However, since procurement problems are business-to-business they tend to be more complex and have led to the development and application of advanced auction types that allow for negotiations over multiple units of multiple items, and the configuration of the attributes of items. At the heart of auctions is the problem of decentralized resource allocation.

Finding multiperiod Nash equilibria in pool-based electricity markets

Abstract: Pool-based electricity markets can be simulated with various degrees of accuracy. When compared to actual markets, most of the simulators produce outcomes than cannot be extrapolated beyond the specific scenario analyzed. This is most critical for regulators and market participants which need tools to analyze market power and bidding strategies, respectively, for a broad range of scenarios. Both objectives can be tackled if the possible equilibria of a pool-based multiperiod market are determined. This paper presents a three-step methodology to find these equilibria. First, a detailed model of an electricity market is presented, considering multiperiod bidding, price elasticity, and network modeling. Second, an iterative simulation process is run to detect participants' bidding strategies implicit in the optimized production resulting from the simulation. Finally, output data from the simulator are analyzed to obtain Nash equilibria. Iterated deletion is used in the last step to remove strategies that are dominated by others that generate higher profits. A realistic case study illustrates the proposed technique.

Using laboratory experiments for policymaking: An example from the Georgia irrigation reduction auction

Abstract: In recent years, interest has been growing in policy applications of different auction systems. This paper reports a series of experiments that were used to design and implement an auction in a unique policymaking environment. In April 2000, the Georgia legislature passed a law that mandated that the state hold an auction in drought years to pay some farmers to suspend irrigation. This paper reports the results of laboratory experiments state policymakers used to determine the auction institution that would be used to fulfill the requirements of this new law. Experimental results are compared with farmers' bidding behavior in the state-run irrigation auction used to reduce water usage in Georgia. © 2004 by the Association for Public Policy Analysis and Management.

Are auctions more efficient than fixed price schemes when bidders learn

Abstract: Auctions are increasingly being considered as a mechanism for allocating conservation contracts to private landowners This interest is based on the widely held belief that competitive bidding helps minimize information rents This study constructs an agent-based model to evaluate the long-term performance of conservation auctions under settings where bidders are allowed to learn from previous outcomes The results clearly indicate that the efficiency benefits of oneshot auctions are quickly eroded under dynamic settings Furthermore, the auction mechanism is not found to be superior to fixed payment schemes except when the latter involve the use of high prices

Sent Seeking With Private Values

Abstract: We study a rent-seeking contest in which the players'valuations of the prize are private information. We determinea Bayesian equilibrium and give conditions under which theequilibrium exists. Although players are ex ante symmetric,increased possibilities for ex post lopsidedness lead toless aggressive bidding. (Lopsidedness increases as players'values become less positively correlated or as the variationin possible values increases.) We also compare theprivate-information contest to a related public-informationcontest in which the realizations of values are commonknowledge. The contests are equally efficient and players areindifferent between the two, but risk-averse sellers of theprize are not.

An exploration of the adoption of E-auctions in supply management

Abstract: Increasingly, reverse e-auctions are replacing traditional competitive bidding for sourcing decisions. Using the Internet, reverse e-auctions allow suppliers to compete dynamically, in real-time, for a buyer's business. During a reverse e-auction, suppliers submit multiple electronic bids over a fixed time period, often 30 min or less. Typically, the price of the item or service being purchased drops, often dramatically, during the bidding process. E-auctions offer a range of benefits to buying organizations including lower transaction costs, shorter order-cycle times, a large pool of potential suppliers, and competitive purchase prices. Some buyers are concerned that the emphasis on price will overshadow other important performance characteristics. The differences between buying organizations that have adopted reverse e-auctions and those that have not used e-auctions for sourcing decisions are explored in this paper. Data for the study were gathered using a survey of vice presidents and directors of purchasing. Chi-squared analysis shows that there are no differences between reverse e-auction adopters and nonadopters on the level of importance placed on the purchasing objectives of cost management and on supplier collaboration. There is a significant difference considering organization size, where reverse e-auction adopters have higher annual sales than nonadopters. The findings suggest that contrary to expectations, e-auction use and supplier collaboration are not mutually exclusive. Opportunities for future research are discussed.

The seductive discourse of development: The Cape Town 2004 Olympic bid

Abstract: Research on how the decision to bid for the Olympics is made, the resources and processes involved in the bidding process and how a country responds to a failed bid is important. These aspects are embedded in a range of political and economic processes from the local to the global level. The Olympic Games is the ultimate mega-event. This article uses the case study of the Cape Town 2004 Olympic Bid (CTOB) to examine the above aspects, highlighting the global dimensions of bidding for major events. The CTOB illustrates that contemporary sport associations and structures are strongly influenced by emergent global forces such as global capital and dominance by certain regions. This often results in countries being disadvantaged from one of two sides. Either they cannot afford to participate in the bidding process or they cannot lobby sufficiently to influence the international sport associations.