Valuation Structure in First-Price and Least-Revenue Auctions: An Experimental Investigation

In many auctions the valuation structure involves both private and common value elements. Existing experimental evidence (e.g. Goeree and Offerman in Am. Econ. Rev. 92(3):625–643, 2002) demonstrates that first-price auctions with this valuation structure tend to be inefficient, and inexperienced subjects tend to bid above the break-even bidding threshold. In this paper, we compare first-price auctions with an alternative auction mechanism: the least-revenue auction. This auction mechanism shifts the risk regarding the common value of the good to the auctioneer. Such a shift is desirable when ex post negative payoffs for the winning bidder results in unfulfilled contracts, as is often the case in infrastructure concessions contracts. We directly compare these two auction formats within two valuation structures: (1) pure common value and (2) common value with a private cost. We find that, relative to first-price auctions, bidding above the break-even bidding threshold is significantly less prevalent in least-revenue auctions regardless of valuation structure. As a result, revenue in first-price auctions is higher than in least-revenue auctions, contrary to theory. Further, when there are private and common value components, least-revenue auctions are significantly more efficient than first-price auctions

Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition

In recent auctions for paging licenses, the Federal Communications Commission has granted businesses owned by minorities and women substantial bidding credits. In this article, Professors Ayres and Cramton analyze a particular auction and argue that the affirmative action bidding preferences, by increasing competition among auction participants, increased the government\u27s revenue by $45 million. Subsidizing the participation of new bidders can induce established bidders to bid more aggressively. The authors conclude that this revenue-enhancing effect does not provide a sufficient constitutional justification for affirmative action—but when such justification is independently present, affirmative actions can cost the government much less than is currently thought

Auction design and favoritism

The theory of auctions has ignored the fact that often auction designers, not the principal, design auctions. In a multi attribute auction, the auction designer may bias his subjective evaluation of quality or distort the relative weights of the various attributes to favor a specific bidder, an ancient concern in the procurement of weapons, in the auctioning of government contracts and in the purchase of electricity by regulated power companies. The paper analyzes the steps to be taken to reduce the possibility of favoritism. It is first shown that in the absence of favoritism, quality differentials among firms are more likely to be ignored if the auction designer has imperfect information about the firm's costs. Second, if the auction designer may collude with only one bidder, the other bidders should be chosen if they are as least as efficient as the former bidder, and no hard information about quality differentials is released by the auction designer that would justify fair discrimination in favor of the former bidder. Last, if the auction designer can collude with any bidder, the optimal auction tends to a symmetric auction in which quality differentials are ignored. The possibility of favoritism reduces the auction designer's discretion and makes the selection process focus on non-manipulable (monetary) dimensions of bids.Supported by the Pew Charitable Trust, the Ford Foundation, and the MIT Energy Lab

Essays in industrial economics:Labor market imperfections, cartel stability, and public interest cartels

This dissertation bundles three essays that contribute to a wider understanding of the measurement, consequences, and prevention of market imperfections. The first essay introduces a method to measure the firm-level relation between the marginal revenue contribution of employees and their compensation. This method is applied to firm-level data on the Dutch economy over the years 2007 to 2018. Overcompensation of employees on the margin relative to their revenue contribution is related to under-compensation of materials suppliers on the margin, suggesting that input market imperfections on various input markets interact. The second essay compares the stability of collusive agreements in the first-price sealed-bid auction and the English auction in a laboratory experiment. Bidding rings are more often stable in the English auction, a finding suggested by theory but so far not reported in the empirical literature. The third essay investigates whether allowing firms to form voluntary agreements can increase their standard of corporate social responsibility. In a model of oligopolistic competition, it is shown that unless firms can benefit at the expense of consumers, voluntary agreements will not promote corporate social responsibility

Essays on Auctions, Tournaments, and Imperfect Competition

This thesis is a collection of essays in applied microeconomic theory. It is composed of three parts. Part I (Procurement of innovation: tournaments vs auctions) deals with the procurement of innovations and compares the performance of two prominent procurement mechanisms: scoring auctions and fixed-prize tournaments. Unlike the literature, we assume that the procurer cannot commit himself to never bargain with anyone who bypassed the given mechanism. Under this condition, innovators with high value innovations may gain more from bypassing the mechanism and instead speculate on bargaining with the procurer after the mechanism has been completed. As a result, it may occur that only lemons, i.e., only low value innovations, are submitted. Altogether, we show that fixed-prize tournaments are more suitable to handle the bypass problem than auctions, and the optimal fixed-prize tournament is more profitable for the procurer than the optimal auction. Part II (Strategic information transmission in sequential auctions) deals with issues of strategic information transmission that occur if bidders participate in a sequence of auctions and bidders' valuations are correlated across auctions. In such a framework, the outcome of the early auction may reveal information concerning bidders' valuations which may adversely affect their expected payoffs in later auctions. Of course, bidders take into account that their bids affects others' beliefs, and adjust their bidding behavior in such a way that the inference from observed bids to underlying valuations is blurred, to which we refer as a case of signal jamming. Part III (Signaling in market games with downstream interaction) focuses on the interaction between strategic behavior and subsequent downstream interaction in an oligopoly aftermarket, using the examples of wage bargaining and takeover bidding. The common feature in both applications is that the negotiated wages resp. the observed winning bid in a takeover contest serve as a signal of the respective players' type, which affects the interaction in the downstream oligopoly market. Players take this signaling aspect into account, which may give rise to inflated equilibrium wages respectively takeover bids

A Common Value OTC Network Model

This thesis looks at decentralized client-dealer markets by representing them as a Bertrand competition over a network of connections and examines the Nash equilibrium bid-ask spread properties. We specifcally look at OTC financial markets with a common but unknown true value and show how equilibrium bid and ask prices can be viewed as the optimal amounts of signal reduction in a common-value first-price auction. We algebraically examine the equilibrium in the duopoly case and then analyze the equilibriums numerically in the n-dealer case. Our model suggests that changing transparency can have non-intuitive effects that depend on both the network structure and the information asymmetry. Similarly, the model can explain the empirically observed centrality premiums and discounts found in some OTC markets and other noted pricing anomalies. We apply our network model to the UK betting market using data from the UK General Election 2019. In betting markets, win probabilities are the asset, and dealers are the bookmakers, and we find that bookmakers' odds closely follow the model's predicted levels and exhibit a predicted centrality discount

Investigating price performance on initial public offers: a comparative analysis of the Johannesburg Stock Exchange and the Nigerian Stock Exchange

Abstracts in English, Afrikaans and ZuluThe advancement and development of the financial sector is fundamental for building an efficient economic system that enhances foreign and domestic investments. The aim of this study was to compare the relationship between the price performance of initial public offerings and macroeconomic indicators in the South African and the Nigerian economy. With the increase of IPO listing on both stock exchanges, it is of paramount importance that an analysis and examination of IPO performance and its contribution to the economy is conducted. Using the 91 and 19 initial public offerings that were listed on the Johannesburg Stock Exchange and the Nigerian Stock Exchange respectively during the years 2005 to 2015, price performance was measured by using the market-adjusted abnormal returns and the wealth relative model. The linear ordinary least squares regression model was used to measure the relationship between initial public offering performance and macroeconomic indicators. Based on the mean market adjusted returns, initial public offerings listed between 2005 and 2015 were under-priced. The regression model established that the first day, week and month price changes in Nigeria were 0.19, 0.48 and 0.77 times higher respectively than to South Africa. The regression analysis found that inflation and interest rates were positively correlated with price changes at the end of the first month of trade, whereas gross domestic product growth was not statistically significant. Therefore, to evade financial loss, investment decision making processes should consider factors such as geographic location, interest rates, inflation and the industry prior to making the decision.Die bevordering en ontwikkeling van die finansiële sektor is fundamenteel vir die ontwikkeling van ʼn doeltreffende ekonomiese stelsel wat buitelandse en binnelandse investering aanmoedig. Die doel van hierdie studie was om die verhouding tussen die prysprestasie van aanvanklike openbare aanbiedinge en makro-ekonomiese aanwysers in die Suid-Afrikaanse en Nigeriese ekonomie te vergelyk. Met die toename in AOA-notering op albei aandelebeurse, is dit uiters belangrik dat ’n ontleding van en ondersoek na AOA-prestasie en sy bydrae tot die ekonomie uitgevoer word. Deur gebruikmaking van die 91 en 19 aanvanklike openbare aanbiedinge wat onderskeidelik op die Johannesburgse Effektebeurs en die Nigeriese Effektebeurs gedurende die tydperk 2005 tot 2015 genoteer is, is prysprestasie gemeet deur gebruikmaking van die markaangepaste abnormale opbrengste en die rykdomrelatiewe model. Die lineêre gewone kleinste kwadrate-regressiemodel is gebruik om die verwantskap tussen die prestasie van aanvanklike openbare aanbod en makro-ekonomiese aanwysers te meet. Op grond van die gemiddelde markaangepaste opbrengste was aanvanklike openbare aanbiedinge wat tussen 2005 en 2015 genoteer is, onderprys. Die regressiemodel het vasgestel dat die eerste dag-, week- en maandprysveranderinge in Nigerië onderskeidelik 0.19, 0.48 en 0.77 keer hoër as in Suid-Afrika was. Die regressieontleding het bevind dat inflasie en rentekoerse ’n positiewe korrelasie gehad het met prysveranderinge aan die einde van die eerste handelsmaand, terwyl bruto binnelandse produk se groei nie statisties beduidend was nie. Derhalwe, om finansiële verlies te ontduik, behoort investeringbesluitnemingsprosesse faktore soos geografiese ligging, rentekoerse, inflasie en die bedryf in aanmerking te neem voordat besluite geneem word.Ukuqhubekela phambili kanye nentuthuko yomkhakha (sector) yezezimali kubalulekile ekwakheni inqubo yezomnotho esebenza kahle neqhubekela phambili ukutshalwa kwezimali zangaphandle kanye nezangaphakathi ezweni. Inhloso yalolu cwaningo bekuwukuqhathanisa ubuhlobo phakathi kokusebenza kwentengo yama-initial public offerings kanye nezinkomba zama-macroeconomic kumnotho weNingizimu Afrika kanye nowase-Nigeria. Ngokwenyuka kwe-IPO listing kuwo womabili ama-stock exchange, kubaluleke kakhulu ukuthi kwenziwe uhlaziyo nohlolo lokusebenza kwe-IPO kanye nomthelela wakho kumnotho kumele kwenziwe. Ngokusebenzisa ama-initial public offerings ka 91 no 19 kwi-Johannesburg Stock Exchange kanye nakwi-Nigerian Stock Exchange ngokuhambisana phakathi kweminyaka ka 2005 kanye no 2015, ukusebenza kwamanani entengo kwakalwa ngokusebenzisa ama-market-adjusted abnormal returns kanye ne-wealth relative model. Imodeli ye-linear ordinary least squares regression model kwasetshenziswa ukukala ubuhlobo phakathi kwama-initial public offering performance kanye nezinkomba ze-macroeconomic. Ngokulandela i-mean market-adjusted returns, ama-initial public offerings okwafakelwa kuhla phakathi kweminyaka ka 2005 kanye no 2015 kwakufakelwe ngentengo ephansi. I-regression model yathola ukuthi ngosuku lokuqala, ngeviki, kanye nenyanga, ukushintsha kwamanani entengo eNigeria, kwakungu 0.19, 0.48 kanye ne 0.77 ngezihlandla eziphezulu kuneNingizimu Afrika. Uhlaziyo lwe-regression analysis lwathola ukuthi i-infleshini kanye namazinga enzalo achaphazeleka ngendlela enhle ngokuhambisana noshintsho lwentengo ekupheleni kwenyanga yokuqala yokuhwebelana, lapho khona ukukhula kwe-gross domestic project kwakungakhulile kakhulu ngokwezibalo. Ngakho-ke, ukugwema ulahlekelo kwezezimali, izinqubo zokuthatha izinqumo ngotshalo-mali kumele kubonelele izinto ezifana nendawo okuyi-geographical location, amazinga enzalo, i-infleshini kanye nemboni ngaphambi kokuthatha isinqumo.Finance, Risk Management and BankingM. Com. (Business Management

Bidder Collusion and Antitrust Law: Refining the Analysis of Price Fixing to Account for the Special Features of Auction Markets

Courts and commentators have painstakingly analyzed antitrust policy toward horizontal price fixing, but surprisingly, one of the most common forms of price fixing--bidder collusion-has escaped the sustained attention of antitrust lawyers. We attribute this inattention to the mistaken belief that the economics of bidder collusion is essentially equivalent to the economics of price fixing in posted-price markets. However, there are significant differences regarding the economics of collusion in auction and procurement markets as compared to posted-price markets, and we derive antitrust policy recommendations that apply specifically to bidder collusion in this article

Essays in mechanism design

This thesis consists of essays in the field of mechanism design