Strong activity rules for iterative combinatorial auctions

Traditional auction mechanisms support price negotiations on a single item. The Internet allows for the exchange of much more complex offers in real-time. This is one of the reasons for much research on multidimensional auction mechanisms allowing negotiations on multiple items, multiple units, or multiple attributes of an item, as they can be regularly found in procurement. Combinatorial auctions, for example, enable suppliers to submit bids on bundles of items. A number of laboratory experiments has shown high allocative efficiency in markets with economies of scope. For suppliers it is easier to express cost savings due to bundling (e. g., decreased transportation or production costs). This can lead to significant savings in total cost of the procurement manager. Procurement negotiations exhibit a number of particularities: It is often necessary to consider qualitative attributes or volume discounts in bundle bids. These complex bid types have not been sufficiently analyzed. The winner determination problem requires the consideration of a number of additional business constraints, such as limits on the spend on a particular supplier or the number of suppliers. Iterative combinatorial auctions have a number of advantages in practical applications, but they also lead to new problems in the determination of ask prices. In this paper, we will discuss fundamental problems in the design of combinatorial auctions and the particularities of procurement applications.Reprint of an article from WIRTSCHAFTSINFORMATIK 47(2)2005:126–134.

Iterative combinatorial auctions (ICAs) are IT-based economic mechanisms where bidders submit bundle bids in a sequence and an auctioneer computes allocations and ask prices in each auction round. The literature in this field provides equilibrium analysis for ICAs with nonlinear personalized prices under strong assumptions on bidders' strategies. Linear pricing has performed very well in the lab and in the field. In this paper, we compare three selected linear price ICA formats based on allocative efficiency and revenue distribution using different bidding strategies and bidder valuations. The goal of this research is to benchmark different ICA formats and design and analyze new auction rules for auctions with pseudodual linear prices. The multi-item and discrete nature of linear price iterative combinatorial auctions and the complex price calculation schemes defy much of the traditional game theoretical analysis in this field. Computational methods can be of great help in exploring potential auction designs and analyzing the virtues of various design options. In our simulations, we found that ICA designs with linear prices performed very well for different valuation models even in cases of high synergies among the valuations. There were, however, significant differences in efficiency and in the revenue distributions of the three ICA formats. Heuristic bidding strategies using only a few of the best bundles also led to high levels of efficiency. We have also identified a number of auction rules for ask price calculation and auction termination that have shown to perform very well in the simulations.

Game theory and the spectrum auctions

High Bids and Broke Winners

Auction Design and Order of Sale with Budget-Constrained Bidders

Market Design for Renewable Energy Auctions: An Analysis of Alternative Auction Formats

This article studies iterative multi-attribute auctions for multi-unit procurement. Order splitting among suppliers is allowed in auctions to improve efficiency and take advantage of suppliers' cost structures. Suppliers are also allowed to provide discriminative prices over units based on their cost structures. A mechanism called iterative multi-attribute multi-unit reverse auction (IMMRA) is proposed based on the assumption of the modified myopic best-response strategies. Results from numerical experiments show that the IMMRA achieves market efficiency in most instances. The inefficiency occurs occasionally in special cases when cost structures are significantly different among suppliers. Numerical results also show that the IMMRA results in lower buyer payments than the traditional Vickrey-Clarke-Grove (VCG) payments in most cases without significantly hurting market efficiency.

Spectrum auctions in a thin market: The Korean case

Price Discovery of German Index Derivatives During Financial Turmoil

The Federal Communications Commission (FCC) spectrum auctions use a simultaneous ascending auction design. Bidders bid on numerous communication licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to bid higher on any license. With full revelation of bidding information, simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. These strategies can help bidders coordinate a division of the licenses, and enforce the proposed division by directed punishments. We examine solutions to mitigate collusive bidding in the spectrum auctions, and then apply these ideas to the design of daily electricity auctions.

This article examines agreements between a buyer and one of the suppliers which increase their joint surplus. The provisions of such agreements depend on the buyer's ability to design the rules of the final procurement auction. When the buyer does not have this ability, their joint surplus can be increased by an agreement which grants to the preferred supplier a right of first refusal on the lowest price from the other suppliers. When the buyer has this ability, their joint surplus can be maximized by a revelation game for the cost of the preferred supplier and a reserve price based on that cost.

Many auctions involve the sale of a variety of distinct assets. Examples are airport time slots, delivery routes, network routing, and furniture. Because of complementarities or substitution effects between the different assets, bidders have preferences not just for particular items but for sets of items. For this reason, economic efficiency is enhanced if bidders are allowed to bid on bundles or combinations of different assets. This paper surveys the state of knowledge about the design of combinatorial auctions and presents some new insights. Periodic updates of portions of this survey will be posted to this journal's Online Supplements web page at http://joc.pubs.informs.org/OnlineSupplements.html

Auctions where landholders submit conservation projects for consideration in return for payment have recently gained popularity. Flexible versions of these, combinatorial auctions, which allow for the simultaneous submission of bids on different combinations of projects, have recently been tested for conservation purposes. Combinatorial auctions allow bidders to exploit synergies in the execution of multiple conservation activities while the auction mechanism stimulates competition among potential participants, enabling the auctioneer (or government) to secure a cost-effective set of conservation projects. Combinatorial auctions have the potential to improve outcomes beyond what is possible with the simple auctions explored in trials over the last decade in many parts of Australia. This article reviews the state of the art in the design of combinatorial auctions with a particular focus on conservation auctions. Key design issues identified are the problem of determining the winning bid, pricing formats, and iterative bidding formats where bidders are able to revise their bids before a final selection is made.

With the rapid growth of wireless devices and applications, limited spectrum resource has become the bottleneck of network development. Cognitive radio has emerged as a promising approach to address spectrum scarcity by opening the access of idle licensed spectrum, owned by Primary Users (PUs), to unlicensed users, i.e., Secondary Users (SUs). This process involves two significant challenges: how to encourage PUs to open the access of licensed spectrum and how to assign the bandwidth among SUs. Additionally, the amount of residual bandwidth of a PU is always limited and an SU's bandwidth demand is always lower-bounded according to Quality of Service (QoS) requirements. Therefore, it is essential to assign the bandwidth on the basis of bandwidth limitation and QoS requirement. In this paper, we propose an iterative auction scheme, in which PUs and SUs form a market and trade the bandwidth, to jointly address the problems above. We incorporate the price scheduling process into our auction design. The simulation results verifies the convergence and efficiency of our auction scheme.

The combinatorial clock auction (CCA) is an important recent innovation in auction design that has been utilised for many spectrum auctions worldwide. While the theoretical foundations of the CCA are described in a growing literature, many of the practical implementation choices are neglected. In this article, we examine some of the most critical practical decisions for a regulator implementing the CCA. Topics include: implementation of reserve prices; endogenous band plans; supplementary round activity rules; competition policy; bidding languages; and allocation of the core burden. We illustrate our discussion with examples from recent spectrum auctions that used the CCA format.