Showing papers on "Bidding published in 2006"

...plus shipping and handling: Revenue (non) equivalence in field experiments on ebay

Abstract: Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.

Designing electricity auctions

Abstract: Motivated by the new auction format introduced in the England and Wales electricity market, as well as the recent debate in California, we characterize bidding behavior and market outcomes in uniform and discriminatory electricity auctions. We find that uniform auctions result in higher average prices than discriminatory auctions, but the ranking in terms of productive efficiency is ambiguous. The comparative effects of other market design features, such as the number of steps in suppliers' bid functions, the duration of bids and the elasticity of demand are also analyzed. We also consider the relationship between market structure and market performance in the two auction formats. Finally, we clarify some methodological issues in the analysis of electricity auctions. In particular, we show that analogies with continuous share auctions are misplaced so long as firms are restricted to a finite number of bids.

...Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay

Abstract: Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.

Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements*

Abstract: This paper examines the effects of mergers on bidding firms’ stock prices. We find evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a “hot” merger market) or if the overall stock market is doing better. However, there is long run reversal. Long-run bidder stock returns are lower for mergers announced when the either merger or stock markets were hot at the time of the merger than for those announced at other times.

Energy price forecasting - problems and proposals for such predictions

Abstract: This paper discusses the value of price forecasting in the electricity market during bidding or hedging against volatility. When bidding in a pool system, the market participants are requested to express their bids in terms of prices and quantities. Since the bids are accepted in order of increasing price until the total demand is met, a company that is able to forecast the pool price can adjust its own price/production schedule depending on hourly pool prices and its own production costs. This paper also discusses the challenges of price forecasting and describes some of the proposed methods for meeting these challenges.

Electricity price forecasting through transfer function models

Abstract: Forecasting electricity prices in presentday competitive electricity markets is a must for both producers and consumers because both need price estimates to develop their respective market bidding strategies. This paper proposes a transfer function model to predict electricity prices based on both past electricity prices and demands, and discuss the rationale to build it. The importance of electricity demand information is assessed. Appropriate metrics to appraise prediction quality are identified and used. Realistic and extensive simulations based on data from the PJM Interconnection for year 2003 are conducted. The proposed model is compared with naive and other techniques.

Bidding for incomplete contracts: an empirical analysis

Abstract: Procurement contracts are often incomplete because the initial plans and specifications are changed and refined after the contract is awarded to the lowest bidder. This results in a final cost to the buyer that differs from the low bid, and may also involve significant adaptation and renegotiation costs. We propose a stylized model of bidding for incomplete contracts and apply it to data from highway paving contracts. Reduced form regressions suggest that bidders respond strategically to contractual incompleteness and that adaptation costs, broadly defined, are an important determinant of the observed bids. We then estimate the costs of adaptation and bidder markups using a structural auction model. The estimates suggest that adaptation costs on average account for about ten percent of the winning bid. The distortions from private information and local market power, which are the focus on much of the literature on optimal procurement mechanisms, are much smaller by comparison.

Forward-Looking Bidding in Online Auctions

Abstract: Internet auction sites, such as eBay, are increasingly being used to sell mass-produced consumer durables. The largest eBay categories in terms of dollars are cars, consumer electronics, computers, clothing/accessories, and books/movies/music (according to eBay’s 2004 company report). Because the ending times of the individual auctions are not synchronized, each of these markets evolves as a sequence, allowing bidders to focus on the auction that will end first, while accounting for other, subsequent auctions. Because online auctions are usually listed for several days before concluding, detailed information about what will be sold and when it will be sold in the near future is available to bidders. Two important questions arise: How should rational consumers interested in buying just one unit of the good use such information in forming their bids? and Do eBay bidders actually use the information accordingly? To answer these questions, this article develops a new model of equilibrium bidding in a very long sequence of auctions and provides empirical evidence of the model’s relevance to actual behavior of eBay bidders. The model assumes that each product category is horizontally differentiated into several types of goods and that each bidder has a unit demand for only one type of good. For example, a consumer may be shopping for one DVD of his or her favorite movie or for one unit of a specific brand and model of an MP3 player. Therefore, each bidder faces a trade-off between winning now and winning later. This trade-off arises from individual desired units being perfect substitutes; that is, the winner of each auction exits the marketplace and thus forgoes the expected surplus from participating in future auctions that also sell the desired good, possibly for a lower price. The current winner’s forgone future surplus is an opportunity cost of winning now. Thus, rational, forward-looking bidders should reduce their bids relative to the myopic bidding strategy that would be optimal in the absence of future auctions selling their desired type of good.

Electricity price forecasting with confidence-interval estimation through an extended ARIMA approach

Abstract: Accurate electricity price forecasting is a crucial issue concerned by market participants either for developing bidding strategies or for making investment decisions. Due to the complicated factors affecting electricity prices, accurate price forecasting turns out to be very difficult. The autoregressive integrated moving average (ARIMA) approach has been extended to make hourly market clearing price (MCP) forecasting in electricity spot markets with error correction and confidence interval estimation. The ARIMA model used for forecasting price and the method to implement price forecasting are presented first. Then the ARIMA approach is extended to include error correction for improving accuracy of price forecasting. Moreover, the confidence interval of the forecasted prices is estimated assuming the residual errors are in gaussian or uniform distribution. Hourly MCP forecasting of the Californian Power Market is used as a computer example, and the comparison with conventional ARIMA approach is given. Computer test results show clearly that the suggested extended ARIMA approach for spot price forecasting is very effective with satisfactory accuracy. It can work under very worse market conditions with high price volatility.

Optimizing demand-side bids in day-ahead electricity markets

Abstract: We present a model of a purchaser of electricity in Norway, bidding into a wholesale electricity pool market that operates a day ahead of dispatch. The purchaser must arrange purchase for an uncertain demand that occurs the following day. Deviations from the day-ahead purchase are bought in a secondary market at a price that differs from the day-ahead price by virtue of regulating offers submitted by generators. Under an assumption that arbitrageurs are absent in these markets, we study conditions under which the purchaser should bid their expected demand and examine the two-period game played between a single generator and purchaser in the presence of a competitive fringe. In all our models, it is found that purchasers have an incentive to underbid their expected demand, and so the day-ahead prices will be below expected real-time prices. We also derive conditions on the optimal demand curve that purchasers should bid if the behavior of the other participants is unknown but can be modeled by a market distribution function.

Price and Nonprice Criteria for Contractor Selection

Abstract: Although the public sector has a long tradition of using the lowest bid as the award criterion for contracts, reliance on nonprice criteria is increasing. The purpose of this paper is to describe and explain how public owners use multiple criteria for the award of construction contracts. It is likely that nonprice criteria support the alignment of owner and contractor interests, and that bidder behavior should be affected by the likelihood of repeated contracts, and by the transparency of owners' evaluation procedures. Data from 386 bidding documents reflecting practice in Swedish municipalities in 2003 are analyzed. A typical pattern is a 70% price weight combined with three nonprice criteria. Price formulas, translating bid prices into scale values, were found to be based on the lowest bid, bid spread, or average bid. Nonprice criteria were evaluated on either relative or absolute merits. Owners should be aware of the incentives that their selection practices create and view this in a policy perspective, whereas contractors should be ready to assess the short and long term values of nonprice features.

A practical implementation of secure auctions based on multiparty integer computation

Abstract: In this paper we consider the problem of constructing secure auctions based on techniques from modern cryptography We combine knowledge from economics, threshold cryptography and security engineering to implement secure auctions for practical real-world problems

Online algorithms for market clearing

Abstract: In this article, we study the problem of online market clearing where there is one commodity in the market being bought and sold by multiple buyers and sellers whose bids arrive and expire at different times. The auctioneer is faced with an online clearing problem of deciding which buy and sell bids to match without knowing what bids will arrive in the future. For maximizing profit, we present a (randomized) online algorithm with a competitive ratio of ln(pmax − pmin) p 1, when bids are in a range [pmin, pmax], which we show is the best possible. A simpler algorithm has a ratio twice this, and can be used even if expiration times are not known. For maximizing the number of trades, we present a simple greedy algorithm that achieves a factor of 2 competitive ratio if no money-losing trades are allowed. We also show that if the online algorithm is allowed to subsidize matches---match money-losing pairs if it has already collected enough money from previous pairs to pay for them---then it can actually be 1-competitive with respect to the optimal offline algorithm that is not allowed subsidy. That is, for maximizing the number of trades, the ability to subsidize is at least as valuable as knowing the future. We also consider objectives of maximizing buy or sell volume and social welfare. We present all of these results as corollaries of theorems on online matching in an incomplete interval graph.We also consider the issue of incentive compatibility, and develop a nearly optimal incentive-compatible algorithm for maximizing social welfare. For maximizing profit, we show that no incentive-compatible algorithm can achieve a sublinear competitive ratio, even if only one buy bid and one sell bid are alive at a time. However, we provide an algorithm that, under certain mild assumptions on the bids, performs nearly as well as the best fixed pair of buy and sell prices, a weaker but still natural performance measure. This latter result uses online learning methods, and we also show how such methods can be used to improve our “optimal” algorithms to a broader notion of optimality. Finally, we show how some of our results can be generalized to settings in which the buyers and sellers themselves have online bidding strategies, rather than just each having individual bids.

Apparatuses, methods and systems to identify, generate, and aggregate qualified sales and marketing leads for distribution via an online competitive bidding system

Abstract: The disclosure details the implementation of an apparatuses, methods, and systems to identify aggregate and generate bids for online sales leads. A lead facilitator may use an online lead bidding system to aggregate, and focus user leads and make them available to providers. The providers may make bids to acquire leads from users that are specific to the provider's goods and/or services. The winning bidders are then allowed to provide advertising, offers, and/or the like to the lead generators. Also, the winning bidders are provided with information submitted by the lead generators for follow-up contact, which may include: personal face-to-face meetings, telephone calls, emails, Web links (e.g., for purchasing an item), and/or the like. The lead bidding system also allows for the creation of numerous categories and campaigns, which are useful for market research as well as sales lead generation. As such, the lead bidding system efficiently facilitates commerce by providing qualified leads to providers of goods and services.

Ex Ante Information and the Design of Keyword Auctions

Abstract: This paper discusses a class of auctions, weighted unit-price auctions (WUPAs), which capture key features of keyword auctions, a novel mechanism behind the multi-billion-dollar keyword advertising industry. We analyze the equilibrium bidding strategy in the WUPA class and study its two main design parameters - weighting factors and minimum bids - both of which make use of the auctioneer's ex-ante information on bidders' ability to generate outcomes. Our results indicate equilibrium bidding functions in WUPAs may have kinks and jumps. WUPAs can be efficient when an auctioneer weights unit-price bids by bidders' expected yield and imposes the same minimum score (but not the same minimum bid-price) across all bidders. Optimally weighted WUPAs can generate more revenue than generalized first-price auctions, and optimal minimum bids generally differ from those prescribed in the mechanism design literature.

Doing their bidding: An empirical examination of factors that affect a buyer's utility in Internet auctions

Abstract: What factors make individual bidders pay more or less for the same item in online auctions? We use data on over 55,000 bids over a three-year period collected by a customized Internet software agent. These data are used to perform a within-bidders quasi-experiment, testing bidders who bid on the exact same item at different times during a 30-day period in online auctions. With theories from information systems and consumer behavior as our theoretical lens, we then examine factors that make individuals pay more for the exact same item in online auctions. We find that the same individual will tend to pay more for items sold on a weekend, for items with a picture, and for items sold by experienced sellers. We also find that the same individual is willing to pay more for the same item if others express an interest in that item, exhibiting a type of herd effect. Our results are generalizable to other auctions, and shed light on electronic commerce sales in general, where firms try to sell products for the highest possible price.

Dynamic Mechanism Design for Online Commerce

Abstract: This paper is a mechanism design study for a monopolist selling multiple identical items to potential buyers arriving over time. Participants in our model are time sensitive, with the same discount factor; potential buyers have unit demand and arrive sequentially according to a renewal process; and valuations are drawn independently from the same regular distribution. Invoking the revelation principle, we restrict our attention to direct dynamic mechanisms taking a sequence of valuations and arrival epochs as input. We define two properties (discreteness and stability), and prove under further distributional assumptions that we may at no cost of generality consider only mechanisms satisfying them. This effectively reduces the mechanism input to a sequence of valuations and leads to formulate the problem as a dynamic program (DP). As this DP is equivalent to a well-known infinite-horizon asset-selling problem, we finally characterize the optimal mechanism as a sequence of posted prices increasing with each sale. Remarkably, this result rationalizes somewhat the frequent restriction to dynamic pricing policies and impatient buyers assumption. Our numerical study indicates that, under various valuation distributions, the benefit of dynamic pricing over a fixed posted price may be small. Besides, posted prices are preferable to online auctions for a large number of items or high interest rate, but in other cases auctions are close to optimal and significantly more robust.

Unilateral Competitive Effects of Horizontal Mergers

Abstract: This chapter first reviews the economic theory underlying the unilateral competitive effects of mergers, focusing on the Cournot model, commonly applied to homogeneous products; the Bertrand model, commonly applied to differentiated consumer products; and models of auctions and bargaining, commonly applied when a bidding process or negotiations are used to set prices. This chapter then reviews two classes of empirical methods used to make quantitative predictions of the unilateral effects of proposed mergers.

Auction Bids and Shopping Choices

Abstract: Economists and marketers are often interested in estimating demand for new products and in valuing other non-market goods. Due to the increasing recognition that elicited valuations are sensitive to whether decisions are hypothetical, economists have begun to utilize incentive compatible mechanisms with real goods and real money. This paper investigates preferences expressed in two of the most popular elicitation formats: experimental auctions and discrete choice experiments. We compare the bidding behavior of consumers in four different incentive compatible auctions to the behavior of consumers who made non-hypothetical discrete choices between five goods. Despite the fact that the choice task and auction mechanisms are incentive compatible, we find that auction bids were significantly lower, as much as two times lower in many cases, than valuations implied from choices. We also find that auction data imply own-price elasticities of demand for higher quality products that are significantly more elastic than those implied from choice data. Nevertheless, for the five goods evaluated, individuals' preference orderings were consistent across value elicitation methods. These findings hold important implications for economists' view of preferences and may provide some insight into retailers' prevalent use of markets with posted-prices: individuals were more willing to part with their cash when making choices versus bids.

Nash equilibrium in strategic bidding: a binary expansion approach

Abstract: This paper presents a mixed integer linear programming solution approach for the equilibrium problem with equilibrium constraints (EPEC) problem of finding the Nash equilibrium (NE) in strategic bidding in short-term electricity markets. A binary expansion (BE) scheme is used to transform the nonlinear, nonconvex, NE problem into a mixed integer linear problem (MILP), which can be solved by commercially available computational systems. The BE scheme can be applicable to Cournot, Bertrand, or joint price/quantity bidding models. The approach is illustrated in case studies with configurations derived from the 95-GW Brazilian system, including unit-commitment decisions to the price-maker agents.

Predicting and explaining the propensity to bid in online auctions: a comparison of two action-theoretical models

Abstract: The literature on the willingness to bid and the actual bidding behaviour of consumers in online auctions is currently dominated by approaches based on the economic decision-making and information processing paradigm and are primarily focused on what influences auction outcomes. To the best of our knowledge, no serious attempts have been undertaken to stringently test and compare existing models derived from an action-theoretical perspective to predict and explain consumers´ propensity to use online auctions as well as their actual usage. Two theoretical models seem most promising in this context: The Theory of Planned Behaviour (Ajzen I, 1985, 1991) and a derivative of the Theory of Reasoned Action (Fishbein M and Ajzen I, 1975) tailored towards using computer technologies, the Technology Acceptance Model (Davis FD, 1989). In both theories, intentions play a central role in predicting behaviour. The models differ in their descriptions of the factors that determine behavioural intentions. In the Theory of Planned Behaviour, attitudes towards the behaviour, perceived behavioural control and subjective norms are assumed to influence intentions. In contrast, the Technology Acceptance Model suggests that intentions and attitudes are influenced by the perceived usefulness of a certain technological tool to improve shopping productivity (e.g. by enabling the consumer to obtain a better price or save time) and the tools´ perceived ease of use. In principle, both theories can be used to predict and explain technology-dependent consumer behaviour, but which one is more suited to online auctions? We compared both theories in terms of their predictive power and their practical utility. Although both models explain the propensity to bid in online auctions very well, the Technology Acceptance Model provides more specific recommendations for facilitating the use of online auctions. Copyright © 2006 John Wiley & Sons, Ltd.

Searching the eBay Marketplace

Abstract: This paper proposes a framework for demand estimation with data on bids, bidders' identities, and auction covariates from a sequence of eBay auctions. First the aspect of bidding in a marketplace environment is developed. Form the simple dynamic auction model with IPV and private bidding costs it follows that if participation is optimal the bidder searches with a "reservation bid" for low-price auctions. Extending results from the empirical auction literature and employing a similar two-stage procedure as has recently been used when estimating dynamic games it is shown that bidding costs are non-parametrically identified. The procedure is tried on a new data set. The median cost is estimated at less than 2% of transaction prices.

Field experiments on the effects of reserve prices in auctions: more Magic on the Internet

Abstract: I present experimental evidence on the effects of minimum bids in first-price, sealed-bid auctions. The auction experiments manipulated the minimum bids in a preexisting market on the Internet for collectible trading cards from the game Magic: the Gathering. I examine a number of outcomes, including the number of participating bidders, the probability of sale, the levels of individual bids, and the auctioneer’s revenues. The benchmark theoretical model is one with symmetric, risk-neutral bidders with independent private values. The results verify a number of the predictions concerning equilibrium bidding. Many bidders behave strategically, anticipating the effects of the reserve price on others’ bids.

Value synthesis infrastructure and ontological analysis system

Abstract: The invention shows explicitly how direct and honest communication utilizing a distributed computing network, shared content and services, and a focus on social network dynamics and situational context can directly create experiential and realized value for all participants around the globe. Contributors ( 20 ), having instructional content to share ( 22 ) pertaining to the functional utilization of generically named goods, essentially become knowledge workers and are rewarded ( 26 ) during specific instances when commercial entity Sponsors ( 60 ), who have been granted rights through bidding in an auction ( 64 ), utilize this content to un-intrusively market their branded goods to interested and receptive Consumers ( 10 ), by having their brand names acknowledged as a valuable component of the original content. The content can also be federated with real-time calculations of statistical price information ( 37 ) and specialized data services ( 101 ) to further increase the experiential value. The Sponsors ( 60 ) participating in these niche groups can then be granted access-rights to analyze the developing value network ontology and the ongoing flow of quality information ( 34 ) among the participants in the value network.

The Timing of Bid Placement and Extent of Multiple Bidding: An Empirical Investigation Using eBay Online Auctions

Abstract: Online auctions are fast gaining popularity in today’s electronic commerce. Relative to offline auctions, there is a greater degree of multiple bidding and late bidding in online auctions, an empirical finding by some recent research. These two behaviors (multiple bidding and late bidding) are of “strategic” importance to online auctions and hence important to investigate. In this article we empirically measure the distribution of bid timings and the extent of multiple bidding in a large set of online auctions, using bidder experience as a mediating variable. We use data from the popular auction site www.eBay.com to investigate more than 10,000 auctions from 15 consumer product categories. We estimate the distribution of late bidding and multiple bidding, which allows us to place these product categories along a continuum of these metrics (the extent of late bidding and the extent of multiple bidding). Interestingly, the results of the analysis distinguish most of the product categories from one another with respect to these metrics, implying that product categories, after controlling for bidder experience, differ in the extent of multiple bidding and late bidding observed in them. We also find a nonmonotonic impact of bidder experience on the timing of bid placements. Experienced bidders are “more” active either toward the close of auction or toward the start of auction. The impact of experience on the extent of multiple bidding, though, is monotonic across the auction interval; more experienced bidders tend to indulge “less” in multiple bidding.

AJAE Appendix: Posted Prices and Bid Affiliation: Evidence from Experimental Auctions

Abstract: In most experimental auctions, researchers ask participants to bid on the same item in multiple potentially binding rounds, posting the price submitted by the top bidder or bidders after each of those rounds. If bids submitted in later rounds are affiliated with posted prices from earlier rounds, this practice could result in biased value estimates. In this article, we discuss the results of an experiment designed explicitly to test whether posted prices affect bidding behavior. We find that for familiar items, high posted prices lead to increased bids in subsequent rounds. Our results have implications for researchers conducting experimental auctions. Copyright 2006, Oxford University Press. (This abstract was borrowed from another version of this item.)

Asymmetry in Procurement Auctions: Evidence from Snow Removal Contracts*

Abstract: Differences in cost efficiency and productivity across firms may introduce asymmetries in procure- ment auctions. Relying on a structural approach, this article investigates potential asymmetry among firms bidding for snow removal contracts in MontrThe empirical results show that firms located in close proximity have a cost advantage relative to other firms in the most urbanised part of Montrbecause of prohibitive equipment storage costs. The extent of inefficiency due to asym- metry is empirically assessed. Various policy experiments are performed. A bidding preference policy shows that the city could expect to reduce its costs for allocating snow removal contracts. When bidders willingness to pay depends in part on observable variables, the princi- pal's interest is not best served by creating a level auction playing field. This article studies procurement auctions for snow removal contracts in MontrIt investigates the degree to which companies in disadvantageous locations should win even if they do not submit the lowest bid. From the submitted bids, a novel empirical methodology estimates the extent of cost variation across firms along with its variation within loca- tion. Although the dispersion is substantial, the gain from treating bidders unequally is limited. When observed individual characteristics affect the firms costs and their bidding strategies, all bidders cannot be treated alike. These differences in characteristics or asymmetries among bidders may arise from their size as noted by Laffont et al. (1995), their capacity constraints as in Jofre-Bonet and Pesendorfer (2003) or the possession of better information as in Hendricks and Porter (1988) and Hendricks et al. (1994).

Determinants of escrow service adoption in consumer-to-consumer online auction market: an experimental study

Abstract: Risk relief services (RRSs), as complementary to online trust promoting services, are becoming versatile options for risk reduction in online consumer-to-consumer auctions. In this paper, we identify factors that affect the behavior of buyers in an online auction market who had to either adopt or not adopt online escrow services (OES). An experimental C2C auction system with embedded decision support features was used to collect data. Results show that market factors, such as fraud rate, product price, and seller's reputation are important in determining buyers' OES adoption. This study also finds that sellers' reputation has a significant effect on buyer's risk perception, which influences his OES adoption decision. Furthermore, the buyers' OES adoption decisions were found to be congruent with the implied recommendations that were based on expected utility calculations.

Introduction to Combinatorial Auctions

Abstract: Combinatorial auctions are those auctions in which bidders can place bids on combinations of items, called “packages,” rather than just individual items. The study of combinatorial auctions is inherently interdisciplinary. Combinatorial auctions are in the first place auctions, a topic extensively studied by economists. Package bidding brings in operations research, especially techniques from combinatorial optimization and mathematical programming. Finally, computer science is concerned with the expressiveness of various bidding languages, and the algorithmic aspects of the combinatorial problem. The study of combinatorial auctions thus lies at the intersection of economics, operations research, and computer science. In this book, we look at combinatorial auctions from all three perspectives. Indeed, our contribution is to do so in an integrated and comprehensive way. The initial challenge in interdisciplinary research is defining a common language. We have made an effort to use terms consistently throughout the book, with the most common terms defined in the glossary.