Strategic Demand Reduction in homogenous multiunit auctions (where bidders may be interested in more than one unit)How does the homogenous multi-unit auction mechanisms work?‘Pay-as-you-bid’ auctionUniform price auctionActivity : English Auction of Jar containing ‘Coins’Is the English auction of an item equivalent to second-price sealed bid auction? Why?Advantages of English Auction in a common value settingBrain Teaser / DiscussionSimultaneous Ascending bid auctionsThe most essential difference between multi and single unit auctionsDemand and Supply of an arbitrary commodityDemand and Supply curves in a homogenous multiunit auctionStrategic Demand ReductionHow can one exploit this to bidders advantage?A couple of questions?ConclusionReferences:Strategic Demand Reduction in homogenous multiunit auctions (where bidders may be interested in more than one unit)How does the homogenous multi-unit auction mechanisms work?Three common auction mechanisms:Pay-as-you bid auctionUniform price auctionSimultaneous ascending-bid auction‘Pay-as-you-bid’ auctionBidders each submit bids for various quantities at various prices, the auctioneer determines the market-clearing price, all bids exceeding the market-clearing price are accepted, and bidders pay their winning bids.Uniform price auctionBidders each submit bids for various quantities at various prices, the auctioneer determines the market-clearing price, all bids exceeding the market-clearing price are acceptedbidders pay the market-clearing price for all units won, rather than their actual bids.Like in second price sealed bid auctionThough efficiency cannot compared to single unit second price sealed bid auctionActivity :English Auction of Jar containing ‘Coins’Rules/Things you should know about:This is a ‘common value’ ascending auctionNo collusive bidding is allowedDo not Jump-Bid, this undermines the entire thingEverybody is supposed to observe the bidding process carefully and learn about others valuations from it.You should try to make a profit, if possibleThe main objective is iterative price discovery of an items of unknown value (Common Value)Is the English auction of an item equivalent to second-price sealed bid auction? Why?Depends on the item being auctionedIt is not different in a private value case, Why?Your valuations aren’t influenced by the valuations of others just like in a second price sealed bid auctionAdvantages of English Auction in a common value settingMultiple rounds enable price discoveryHelps Reduce ‘winners curse’Enables you to change your valuations/discover prices on the flyBrain Teaser / DiscussionHow about related items (substitutes/compliments) being auctioned of concurrently using an English auction? What is the optimal bidding strategy?What advantage does the bidder have?Simultaneous Ascending bid auctionsBasic features:allocates a set of M related goods among N agents via separate, concurrent English auctions for each good (M<=N)Each auction may undergo multiple rounds of biddingThe most essential difference between multi and single unit auctionsDiminishing marginal utility of each extra item should be taken into accountDefinition (watered down): There is a decline in the marginal utility that person derives from consuming each additional unit of that product. This is the premise on which buffet-style restaurants operate. They entice you with "all you can eat," all the while knowing each additional plate of food provides less utility than the one before. And despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the originalHence the marginal value of the second item in the auction may be lower than first one which implies that a bidder may not pay as much for the second as the first.Demand and Supply of an arbitrary commodityAn IllustrationPrice (P)Quantity (Q)PESupplyDemandQEPE is the equilibrium priceQE is the equilibrium qtyReduction in demand- Price drops- Qty dropsDemand and Supply curves in a homogenous multiunit auctionAn IllustrationPrice (P)Quantity (Q)PESupplyDemandQE > 1PE is the equilibrium priceQE is the equilibrium qtyReduction in demand- Price drops- Qty remains the sameStrategic Demand Reduction“We have some control over the prices because we are the market”Sometimes an agreement with other bidders are reached during the bidding process. ("If you give me what I want, I’ll leave you alone in the next round”) Similar happened in 1994 FCC broadband spectrum auctions:In round 11, PageNet decided to cutback from bidding on 3 large licenses to 2 . Why? In uniform price auctions this will help one save on inframarginal (the number of items that you absolutely need) items.How can one exploit this to bidders advantage?A couple of questions?Does RET hold in a multiunit auction where bidders are interested in more than one item? Why so?Answer in Appendix A of the paper due todayWhich one would dominate in terms of expected revenues?DependsThe goods being auctioned (whether they are substitutes or complements or totally unrelated)The number of bidders in the market.Simultaneous Ascending bid auction has had a lot of success with the FCC spectrum auctionsThe main reason being, bidders having access to preferences of other bidders during the bidding processConclusionMust take other bidders demands into considerationFailure to do so will drive up the prices to unfavorable levels for all participating partiesThis is one way everybody is better of!References: Klemperer, P. 1999. Auction theory: A guide to the literature. Journal of Economic Surveys.Weber, R. J. 1997. Making more from less: Strategic demand reduction in the FCC spectrum auctions. Journal of Economics and Management Strategy 6(3):529–548.Stone, P. 2002. Randomized Strategic Demand Reduction ACM transactionsCrampton, 1995. Journal of Economics and Management Strategy Crampton, 2005.Many
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