Liquidity constraints and credit subsidies in auctions

I consider an auction with participants that differ in valuation and access to liquid assets. Assuming credit is costly (e.g. due to moral hazard considerations) different auction rules establish different ways of screening valuation-liquidity pairs. The paper shows that standard auction forms result in different allocation rules. When the seller can deny access to capital markets or offer credit subsidies, she gains an additional tool to screen agents. The paper derives conditions under which the seller increases profits by way of subsidizing loans. In particular, in a second price auction, the seller always benefits from offering small subsidies. The result extends to a non-auction setting to show that a monopolist may use credit subsidies as a price discrimination device

An Agent Based Market Design Methodology for Combinatorial Auctions

Auction mechanisms have attracted a great deal of interest and have been used in diverse e-marketplaces. In particular, combinatorial auctions have the potential to play an important role in electronic transactions. Therefore, diverse combinatorial auction market types have been proposed to satisfy market needs. These combinatorial auction types have diverse market characteristics, which require an effective market design approach. This study proposes a comprehensive and systematic market design methodology for combinatorial auctions based on three phases: market architecture design, auction rule design, and winner determination design. A market architecture design is for designing market architecture types by Backward Chain Reasoning. Auction rules design is to design transaction rules for auctions. The specific auction process type is identified by the Backward Chain Reasoning process. Winner determination design is about determining the decision model for selecting optimal bids and auctioneers. Optimization models are identified by Forward Chain Reasoning. Also, we propose an agent based combinatorial auction market design system using Backward and Forward Chain Reasoning. Then we illustrate a design process for the general n-bilateral combinatorial auction market. This study serves as a guideline for practical implementation of combinatorial auction markets design.Combinatorial Auction, Market Design Methodology, Market Architecture Design, Auction Rule Design, Winner Determination Design, Agent-Based System

Auction Basics for Wholesale Power Markets: Objectives and Pricing Rules

Power systems have distinctive features that greatly complicate the development of auction designs. This study reviews the theory and practice of auction design as it relates specifically to U.S. restructured wholesale power markets, i.e., centrally-administered wholesale power markets with congestion managed by locational marginal prices. Basic auction concepts such as reservation value, net seller surplus, net buyer surplus, competitive market clearing, market efficiency, market pricing rules, supply offers, demand bids, strategic capacity withholding, and market power are explained and illustrated. Complicating factors specific to wholesale power markets are clarified, and recent advances in computational tools designed to address these complications are briefly noted.market power; Auction markets; power systems; design; efficency; pricing rules; agent-based test beds

Economist Letter to NTIA on 700 MHz Spectrum Auction

As the 700 MHz auction approaches, we are writing to clear up a common misconception about the nature of spectrum auctions and the impact of various rules on auction revenues.Auctions, spectrum auctions, market design

Revenues in the 700 MHz Spectrum Auction

There have been several comments that criticize auction rules that prevent the two major low-frequency incumbents from winning all of the newly available spectrum and incorporating it into their proprietary networks. Such rules include new-entrant set-asides, new-entrant bidding credits, and the open access plan. We disagree with these criticisms and argue that given the current market structure, such rules are likely to improve welfare and auction revenues. We are submitting this report to provide sound economic analysis of these claims.Auctions, spectrum auctions, market design

Money Out of Thin Air: The Nationwide Narrowband PCS Auction

The Federal Communications Commission held its first auction of radio spectrum at the Nationwide Narrowband PCS Auction in July 1994. The simultaneous multiple-round auction, which lasted five days, was an ascending bid auction in which all licenses were offered simultaneously. This paper describes the auction rules and how bidders prepared for the auction. The full history of bidding is presented. Several questions for auction theory are discussed. In the end, the government collected $617 million for ten licenses. The auction was viewed by all as a huge success-an excellent example of bringing economic theory to bear on practical problems of allocating scarce resources.Auctions; Spectrum Auctions; Multiple-Round Auction

Sudden Termination Auctions – An Experimental Study

The design of markets has become a major issue due to the capability of online operators to implement almost any set of market rules overnight. With this study we contribute to the literature of market design by presenting a theoretical and experimental analysis of sudden termination auctions. Our main focus is on the candle auction that has a positive termination probability at any time in the course of the auction. The second price candle auction which is technically demanding and rarely implemented offline proves to be a faster and equally efficient alternative to standard hard close auctions.auctions, termination rules, electronic markets

Repo auction formats, bidders' behaviour and money market response in India

The treasury securities repo-auction is an important instrument for central banks in managing liquidity and sending interest rate signal to the money market. In the Indian context, the repo-auctions have been used actively in the post-reform period. The present study illustrates the money market reaction to repo-auctions and points out whether such reaction is consistent with applied auction rules. The policy implications are analysed in the light of alternative rules pertaining to discriminatory price auctions and fixed rate repos.Repo Auction Formats; Money Market Response

An Experimental Analysis of Ending Rules in Internet Auctions

A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

Caveat Vendor: A Call to Reform the Scope of Rights of Withdrawal for Off-Premises Contracts Under U.S. Consumer Protection Laws with Respect to the Auction of Art

As sales of art at auction become increasingly popular and accessible, an overlooked consumer right may cause sellers of art to get “burned.” At its core, the auction process is intended to establish the price of a difficult-to-value object of art, therefore, the underlying philosophy of an auction is that sales are final. However, cooling-off rules in U.S. off-premises contracts are broad enough that auction house contracts can potentially fall within the ambit of these rules, giving rise to the consumer’s right to cancel the contract. Arguably, permitting consumers to cancel in remorse undermines the premise of an auction and may be detrimental to the market value of the artwork, the auctioneer’s business, and by extension the consumer. Cooling-off rules are ineffective in the context of art auctions because these rules were not drafted with an understanding of the mechanics of the auction process or the characteristics of the art market, including the subjective value of art. In fact, applying these rules to art transactions would be consumer protection overreach. These rules were designed to redress high pressure sales techniques used by door-to-door salesmen who cornered vulnerable consumers at home. By contrast, the relationship between an auction house and a consignor or winning bidder is very different: the balance of bargaining power favors the consumer. Further, for the auction process to be effective, the consumer cannot be permitted to walk away from the sale out of remorse. Despite some ambiguity in the U.S. legal framework, it is important to not assume that these cooling-off rules do not apply to auction house contracts. Such a mistake could extend the prescribed cooling-off period indefinitely, thus aggravating the costs of administering returns. Ultimately, the art world will be handicapped by the uncertainty of the application of these rules, therefore, the time for reform is now. It is upon stakeholders in the artworld, who have industry expertise that regulators and legislators are unlikely to have, to proactively petition the Federal Trade Commission to develop new approaches to the right to withdraw as it relates to art transactions