Bidding against an unknown number of competitors sharing affiliated information

In the general symmetric model of Milgrom and Weber, equilibrium bidding is analyzed with a stochastic number of bidders. the equilibrium strategies generalize the known expressions in a coherent way. For the equilibrium bid function of the first price auction, an interpretation involving 'marginal winning probabilities' is proposed. With ageneralized version of the linkage principle, the well-known revenue ranking theorems extend to a stochastic number of bidders. As an application, we show that the seller's generically optimal information policy regarding the number of competitors is concealing the information

TRANSPARENCY AND BIDDING COMPETITION IN INTERNATIONAL WHEAT TRADE

One of the major trade policy problems identified by U.S. interests, including grower groups, traders, and policymakers, is that of pricing transparency. This has been a gnawing issue generally related to the pricing practices of competitor exporting countries with state trading enterprises (STEs). The transparency problem generally refers to the inability to observe rivals' terms of trade (including price, quality, credit, etc.) and is normally associated with commercial exporters competing against STE rivals. The perception being the less transparent competitors (STEs) would have a strategic advantage. A game theory model of bidding competition was developed to simulate the effects of information asymmetry amongst rivals. A Bayes-Nash equilibrium was used to derive equilibrium solutions. Several stylized examples were used to illustrate aspects of competition and to analyze effects on bidding strategies. Results indicate that: 1) anything that reduces uncertainties among rivals would reduce equilibrium bids and prices; 2) bidding situations in which there is less transparency have the effect of increasing bids and prices to buyers, and payoffs to sellers; and 3) increases in the number of rivals have the effect of reducing bids and mitigating the informational advantages of STEs. In all cases, less transparent sellers have an advantage in bidding competition relative to more transparent sellers. That advantage in our stylized case was in the area of 1-2$/mt. However, that advantage is mitigated with an increase in the number of transparent rivals and in the case where more transparent players have acted as agents for an STE and have more information about costs of an STE. Further, cessation of exports under U.S. EEP programs should have decreased the transparency of U.S. firms, increasing their competitiveness in the international grain trade.Price Transparency, Strategic Bidding, Game Theory, Bayesian-Nash, State Trading Enterprises, Export Enhancement Program, Wheat, International Relations/Trade,

Regulation, competition, and liberalization

In many countries throughout the world, regulators are struggling to determine whether and how to introduce competition into regulated industries. This essay examines the complexities involved in the liberalization process. While stressing the importance of case-specific analyses, this essay distinguishes liberalization policies that generally are pro-competitive from corresponding anti-competitive liberalization policies

ATTac-2000: An Adaptive Autonomous Bidding Agent

The First Trading Agent Competition (TAC) was held from June 22nd to July 8th, 2000. TAC was designed to create a benchmark problem in the complex domain of e-marketplaces and to motivate researchers to apply unique approaches to a common task. This article describes ATTac-2000, the first-place finisher in TAC. ATTac-2000 uses a principled bidding strategy that includes several elements of adaptivity. In addition to the success at the competition, isolated empirical results are presented indicating the robustness and effectiveness of ATTac-2000's adaptive strategy

IMPORT TENDERS AND BIDDING STRATEGIES IN WHEAT

Bidding competition plays an important role in price discovery and the determination of suppliers in international grains. In this paper we analyze international bidding competition for wheat for a specific importer. Tender data over the period 1993-1999 were analyzed and bid functions estimated by class of wheat (hard red spring, hard amber durum, and hard red winter denoted as HRS, HAD, and HRW, respectively) and by selling firm. A stochastic simulation model was developed to determine the optimal bid and to analyze factors affecting bidding behavior and competition. The tender data indicated there was a surprisingly wide range of bids. Variation of bids across firms submitted for individual HRS tenders had standard deviations that ranged from $5/mt or less in a number of tenders to as high as$22/mt. Tenders for HAD show similar variability. Tenders for HRW showed higher variability yet with standard deviations of bids between $30 and$40/mt. These results show much greater variability than is normally ascribed to competition among international grain sellers. The spread between participants' bids and cost indicators ranged widely across firms. Optimal bids and expected payoffs were derived for a prototypical bidder competing against the existing incumbents. Using this as a base case, we analyzed the impacts of the number of competitors, information, and cost differentials. In each case, we quantified the likely impact on optimal bids and expected payoffs. In addition, there were three particularly interesting extensions from conventional auction models that were examined. One was the impact of the option to the seller of supplying wheat from Canadian origins. Effects of Canadian offers in bid functions were not statistically different from U.S. origins. The effect however, was interpreted as an increase in the number of random bidders within a tender. The effect of this was to reduce optimal bids for HRS by $0.50/mt. This suggests that the effect of Canadian origin as an option is minimal when the Canadian Wheat Board (CWB) sells through accredited exporters. The second interesting effect was that of correlated bids. Results indicated a high degree of correlation among bidders which had the effect of increasing the probability of winning, optimal bids, and expected profits. Finally, we explored the prospective impacts of the winner's curse on optimal bids. Results suggest that in light of the winner's curse, bidders should raise their bids; in the case of HRS, from a high of 1.9% to 7.7% to correct for bias in value estimation, to a low of 0.2% to 3.1% when considering money left on the table. These results have a number of implications. The simulations improve our understanding of a very important mechanism of procurement and competition in international grain trading. For buyers, tendering is useful particularly if there is temporal variability in costs and they vary across supply firms, if the number of bidders is large, and if information about bidders is transparent and bidders' offers are less correlated. Finally, for sellers, auctions can result in intense competition among participants. Being low cost is essential to success in this form of competition. Sellers that are not low cost should avoid auctions to be successful, and bidders should make adjustments to their bids to account for the winner's curse.auction, bidding, wheat tenders, optimal bid, U.S., Canada, Marketing,

A demand-driven approach for a multi-agent system in Supply Chain Management

This paper presents the architecture of a multi-agent decision support system for Supply Chain Management (SCM) which has been designed to compete in the TAC SCM game. The behaviour of the system is demand-driven and the agents plan, predict, and react dynamically to changes in the market. The main strength of the system lies in the ability of the Demand agent to predict customer winning bid prices - the highest prices the agent can offer customers and still obtain their orders. This paper investigates the effect of the ability to predict customer order prices on the overall performance of the system. Four strategies are proposed and compared for predicting such prices. The experimental results reveal which strategies are better and show that there is a correlation between the accuracy of the models' predictions and the overall system performance: the more accurate the prediction of customer order prices, the higher the profit. © 2010 Springer-Verlag Berlin Heidelberg

Cover Pricing and the Overreach of ‘Object’ Liability under Article 101 TFEU

This article uses the example of cover pricing to show a possible overreach of liability under Article 101 TFEU, in relation to arrangements deemed to have the ‘object’ of restricting competition. Cover pricing is where a bidder seeks a non-winning bid from a competitor so that he can participate in a tender process without securing the contract. The wide meaning of ‘concerted practice’ means that a potential breach of Article 101 may arise even where the party receiving the request refuses to provide a cover bid. It is important that a restriction by object (which leads to the finding of an infringement regardless of whether the practice was implemented or had any harmful effect) applies only to the most serious arrangements between undertakings. It is shown that cover pricing very rarely has any anti-competitive effect and indeed the alternative (lawful) behaviour, of openly announcing a non-intention to win the contract, is more likely to reduce competition. It is nevertheless treated as an object restriction, mainly because it involves direct communication between competitors of pricing intentions. Article 101 may therefore be unable to distinguish some arrangements with ambivalent effects from the most serious cartel practices. It is argued that a greater effects analysis is needed (either in applying the law or calculating penalties), to ensure fairness and proportionality