Information asymmetries in pay-per-bid auctions

Recently, some mainstream e-commerce web sites have begun using “pay-per-bid ” auctions to sell items, from video games to bars of gold. In these auctions, bidders incur a cost for placing each bid in addition to (or sometimes in lieu of) the winner’s final purchase cost. Thus even when a winner’s purchase cost is a small fraction of the item’s intrinsic value, the auctioneer can still profit handsomely from the bid fees. Our work provides novel analyses for these auctions, based on both modeling and datasets derived from auctions at Swoopo.com, the leading pay-per-bid auction site. While previous modeling work predicts profit-free equilibria, we analyze the impact of information asymmetry broadly, as well as Swoopo features such as bidpacks and the Swoop It Now option specifically. We find that even small asymmetries across players (cheaper bids, better estimates of other players’ intent, different valuations of items, committed players willing to play “chicken”) can increase the auction duration significantly and thus skew the auctioneer’s profit disproportionately. We discuss our findings in the context of a dataset of thousands of live auctions we observed on Swoopo, which enables us also to examine behavioral factors, such as the power of aggressive bidding. Ultimately, our findings show that even with fully rational players, if players overlook or are unaware any of these factors, the result is outsized profits for pay-per-bid auctioneers

Ascending Auctions

A key question of auction design is whether to use an ascending- bid or a sealed-bid format. The critical distinction between formats is that an ascending auction provides the bidders with information through the process of bidding. This information is a two-edged sword. It may stimulate competition by creating a reliable process of price discovery, by reducing the winner's curse, and by allowing efficient aggregations of items. Alternatively, the information may be used by bidders to establish and enforce collusive outcomes. Ex ante asymmetries and weak competition favor a sealed-bid design. In other cases, an ascending auction is likely to perform better in efficiency and revenue terms. Moreover, information in an ascending auction can be tailored to limit collusion.Auctions; Multiple-Item Auctions, Spectrum Auctions

Second-price common-value auctions under multidimensional uncertainty

The literature has demonstrated that second-price common-value auctions are sensitive to the presence of asymmetries among bidders. In a two-bidder model, Bikhchandani [1988. Reputation in repeated second-price auctions. J. Econ. Theory 46, 97–119] has shown that if it is common knowledge that one bidder has a disadvantage compared to her opponent, that bidder (almost surely) never wins the auction. Employing a similar two-bidder model, this paper shows that this result does not carry over when one allows for two-sided uncertainty. In such case, in every equilibrium, the disadvantaged type bidder needs to win the auction with strictly positive probability. We then solve for the equilibria in two cases, one with two types and another with a continuum of types, and we show that they converge to the symmetric equilibria of the corresponding symmetric auctions. We thus reestablish a lost linkage in the analysis of common-value and almost-common-value auctions.Publicad

How Best to Auction Natural Resources

I study the design of auctions of natural resources, such as oil or mineral rights. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and simple value structures, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids likely is needed to promote efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take by reducing oil or mining company risk.Auctions, natural resource auctions, oil auctions

The Amsterdam Auction

Auctions used to sell houses often attract a diverse group of bidders, with realtors and speculators out for a bargain competing against buyers with a real interest in the house. Value asymmetries such as these necessitate careful consideration of the auction format as revenue equivalence cannot be expected to hold. From a theoretical viewpoint, Myerson's (1981) mechanism design approach has identified the seller's optimal choice. The proposed mechanism entails assigning credits to weaker bidders to promote competition and setting bidder-specific reserve prices. In practice, however, sellers often lack the detailed information needed to choose credits and reserve prices optimally, nor can they always discriminate among bidders. A more practical solution to the seller's problem is suggested by the "Amsterdam auction," where a premium is offered to encourage weak bidders to compete aggressively. This auction format, which has been used to sell houses in Amsterdam for centuries, treats all bidders the same and does not rely on detailed information about their value-distributions. In this paper, we consider premium auctions like the one in Amsterdam and demonstrate their revenue-generating virtues in asymmetric situations. We report the results of an experiment, which compares the standard first-price and English formats with two premium auctions in symmetric and asymmetric settings. The introduction of a premium leads weak bidders to set an endogenous reserve price for stronger rivals, with a dramatic effect on the sales price. Awarding a premium raises revenues, especially since Bertrand competition between weaker bidders virtually dissipates the premium to be paid.Auctions, experiments, asymmetries, premium

Estimation and Comparison of Treasury Auction Formats when Bidders are Asymmetric.

The structural parameters of a share-auction model accounting for asymmetry across bidders, as well as supply uncertainty are estimated with a sample of French Treasury auctions. We find evidence of both informational and risk aversion asymmetries between bidders. A counter-factual analysis also suggests that, in the context of the French Treasury auctions, a shift from the discriminatory to the uniform-price format would simultaneously benefit the French Treasury and the auction's participants.

How Best to Auction Oil Rights

I study the design of oil rights auctions. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and additive values, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids, such as the clock-proxy auction, likely is needed to promote the efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take by reducing oil company risk.Auctions, Oil Auctions, Market Design, Clock Auctions

Asymmetric demand information in uniform and discriminatory call auctions: an experimental analysis motivated by electricity markets

We study the outcomes of experimental multi-unit uniform and discriminatory auctions with demand uncertainty. Our study is motivated by the ongoing debate about market design in the electricity industry. Our main aim is to compare the effect of asymmetric demand-information between sellers on the performance of the two auction institutions. In our baseline conditions all sellers have the same information, whereas in our treatment conditions some sellers have better information than others. In both information conditions we find that average transaction prices and price volatility are not significantly different under the two auction institutions. However, when there is asymmetric information among sellers the discriminatory auction is significantly less efficient. These results are not in line with the typical arguments made in favor of discriminatory pricing in electricity industries; namely, lower consumer prices and less price volatility. Moreover, our results provide some indication that discriminatory auctions reduce technical efficiency relative to uniform auctions.Experiments, asymmetric information, discriminatory price auctions, uniform price auctions, electricity industries

Bidding markets with financial constraints

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks