Information Variability Impacts in Auctions

A wide variety of auction models exhibit close relationships between the winner's expected profit and the expected difference between the highest and second-highest order statistics of bidders' information, and between expected revenue and the second-highest order statistic of bidders' expected asset values. We use stochastic orderings to see when greater environmental variability of bidders' information enhances expected profit and expected revenue

When can lotteries improve public procurement processes?

We study the feasibility, challenges, and potential benefits of adding a lottery component to standard negotiated and rule-based procurement procedures. For negotiated procedures, we introduce a “discrete lottery” in which local bureaucrats negotiate with a small number of selected bidders and a lottery decides who is awarded the contract. We show that the discrete lottery performs better than a standard negotiated procedure when the pool of firms to choose from is large and corruption is high. For rule-based auction procedures, we introduce a “third-price lottery” in which the two highest bidders are selected with equal probability and the project is contracted at a price corresponding to the third highest bid. We show that the third-price lottery reduces the risks from limited liability and renegotiation. It performs better than a standard second-price or ascending auction when the suppliers’ pool size, the risk of cost overrun, delays and non-delivery of the project are high. The choice between a second-price auction, a third price lottery and a lottery amongst all bidders also depends on the weight placed on producer surplus, including for instance the desire to increase the participation of local SMEs in public sector services markets

Revenues and welfare in auctions with information release

This paper studies information release in symmetric, independent private value auctions with multiple objects and unit demand. We compare effects on welfare to those on the seller's revenue. Applying the dispersive order, the previous literature could only identify settings in which welfare provides the stronger incentives for information release. We generalize the dispersive order to k- and k-m-dispersion. These new criteria allow us to systematically characterize situations in which revenue provides stronger incentives than welfare, and vice versa. k-m-dispersion leads to a complete classification if signal spaces are finite and sufficiently many bidders take part

Pricing and Fees in Auction Platforms with Two-Sided Entry

This paper presents, solves, and estimates the first structural auction model with seller selection. This allows me to quantify network effects arising from endogenous bidder and seller entry into auction platforms, facilitating the estimation of theoretically ambiguous fee impacts by tracing them through the game. Relevant model primitives are identified from variation in second-highest bids and reserve prices. My estimator builds off the discrete choice literature to address the double nested fixed point characterization of the entry equilibrium. Using new wine auction data, I estimate that this platform’s revenues increase up to 60% when introducing a bidder discount and simultaneously increasing seller fees. More bidders enter when the platform is populated with lower-reserve setting sellers, driving up prices. Moreover, I show that meaningful antitrust damages can be estimated in a platform setting despite this two-sidedness

Five Essays in Economic Theory

The five essays in this thesis study game-theoretic auction models and their application to economic theory. Chapter 1 analyzes asymmetric all-pay auctions where the bidders' private types are independently drawn out of distinct two-point probability distributions. We characterize the unique equilibrium of the two bidder case. For the n bidder case, we study the all-pay auction with asymmetric random participation. The results are applied to models of information disclosure in contests, endogenous choice of type-probabilities, and competing contests. Chapter 2 considers a market model with rational firms that know the distributions from which their opponents' qualities are drawn. Firms engage in price competition. Consumers only see the firms' prices and rely on word-of-mouth in order to judge the firms' different qualities. All equilibria of the model are characterized. Different equilibria generate identical payoffs for the firms, but different welfare results. In the unique monotone pricing equilibrium, welfare converges to zero in the number of firms. Chapter 3 (joint work with Philipp Weinschenk) studies a price competition game in which customers are heterogeneous in the rebates they get from either of two firms. We characterize the transition from competitive pricing (without rebates) over mixed strategy equilibrium (for intermediate rebates) to monopolistic pricing (for larger rebates). In the mixed equilibria, each firm's strategy is a mixture of two distinct strategies: (i) aggressive pricing that can steal away customers from the other firm and (ii) defensive pricing that can only attract customers who get the rebate. Chapter 4 studies the optimal release of advertising and information in independent private values second-price auctions. The seller costly chooses for each bidder a probability of learning about the auction or of receiving information. Mild but sharp conditions are developed under which the seller allocates his informational efforts among the potential bidders as concentrated as possible. The seller overinvests in advertising if the valuations of the bidders are drawn from a distribution with increasing failure rate. He underinvests if the distribution has decreasing failure rate. The overall level of advertising is higher under distributions that are more dispersed in terms of the excess wealth order. Chapter 5.analyzes a similar problem of information release as in Chapter 4, yet in a different setting. The bidders' valuations are sums of independent, identically distributed random variables. By sending a costly information package to a bidder, the seller can reveal to the bidder the realization of one of the random variables. Our main focus lies on the case of two bidders and on the situation where the seller can sell his information packages to the bidders. It is shown that, essentially, giving the same number of packages to both bidders is dominated by any other choice of dividing the same number of packages