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on Economic Design |
| By: | Vitali Gretschko; Jasmina Simon |
| Abstract: | We examine a setting of independent private value auctions where bidders can covertly acquire gradual information about their valuations. We demonstrate that a dynamic pivot mechanism implements the first-best information acquisition and allocation rule. We apply our results to a commonly used model of auctions with information acquisition. The bidders are symmetric and information acquisition costs are moderate. Our analysis shows that the Dutch auction achieves near‐efficiency. That is, the welfare loss is bounded by the information acquisition cost of a single bidder. In contrast, the English auction may result in greater welfare losses. |
| Keywords: | Information acquisition, dynamic auctions, dynamic pivot mechanism |
| JEL: | D44 D82 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_616 |
| By: | Elizabeth Baldwin; Paul Klemperer; Edwin Lock |
| Abstract: | Product-mix auctions are sealed-bid mechanisms for trading multiple divisible or indivisible units of multiple differentiated goods. They implement competitive-equilibrium allocations when these exist, based on the bids that participants make in a simple geometric language. All concave substitutes (respectively, strong-substitutes) valuations can be uniquely represented, and no other valuations can be represented, by bids in the corresponding version of this language. This provides new characterisations of ordinary substitutes, and of strong substitutes, when goods are indivisible. We discuss implementation of the auctions, and extensions and variants of the language, e.g., allowing for budget constraints. |
| Date: | 2024–12–10 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1060 |
| By: | Takeshi Nishimura; Nobuyuki Hanaki |
| Abstract: | The paradoxical full-surplus-extraction (FE) result, which can impair the mechanism design paradigm, is a long-standing concern in the literature. We tackle this problem by experimentally testing the performance of an FE auction, which is a second-price (2P) auction with lotteries. In the FE treatment, overbid amounts given entry increased and entry rates decreased through rounds, thus FE failed. By contrast, most subjects learned value bidding in the 2P treatment. To identify the causes of failure in the FE, we take an evolutionary-game approach. The FE auction with risk-neutral bidders has exactly two symmetric equilibria, either value bidding with full or partial entry, and only the partial-entry equilibrium is (evolutionarily or asymptotically) stable. Replicator dynamics with vanishing trends well explain observed dynamic bidding patterns. Together, these findings suggest that the FE outcome is not robust to trial-and-error learning by bidders. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1266 |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study mechanism design when agents hold private information about both their preferences and a common payoff-relevant state. We show that standard message-driven mechanisms cannot implement socially efficient allocations when agents have multidimensional types, even under favorable conditions. To overcome this limitation, we propose data-driven mechanisms that leverage additional post-allocation information, modeled as an estimator of the pay-off relevant state. Our data-driven mechanisms extend the classic Vickrey-Clarke-Groves class. We show that they achieve exact implementation in posterior equilibrium when the state is either fully revealed or the utility is linear in an unbiased estimator. We also show that they achieve approximate implementation with a consistent estimator, converging to exact implementation as the estimator converges, and present bounds on the convergence rate. We demonstrate applications to digital advertising auctions and large language model (llm) - based mechanisms, where user engagement naturally reveals relevant information. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2418 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | When faced with budget-constrained bidders, all-pay auctions revenue-dominate standard auctions (first and second-price), which, in a competitive market, gives an edge to the all-pay format. An equilibrium in which sellers compete with standard auctions fails to exist if the all-pay format is available. Assuming the budget is not severely limited, in the unique symmetric equilibrium sellers compete with all-pay auctions. |
| Keywords: | All-pay Auctions, Budget Constraints, Directed Search, Competing Auctions |
| JEL: | D4 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/26 |
| By: | Shosuke Noguchi; Suguru Otani |
| Abstract: | This study investigates products sold before consumption and examines how the duration of the consumption periods and the choice of selling mechanism influence sellers' revenue. Using empirical data from timber auctions, we identify buyers' tendency to delay consumption to resolve payoff uncertainty and reveal heterogeneous motivations among buyers. Through structural estimation, we uncover key parameters for each buyer type, including sensitivity to realized payoffs and consumption-related costs. Leveraging these estimates, we perform counterfactual analyses to propose revenue-enhancing consumption periods and selling mechanisms. Our findings suggest that extending the consumption periods is likely to increase revenue, with the magnitude depending on the selling mechanism, the composition of buyer types, and the number of interested buyers. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.20285 |
| By: | Fridahl, Mathias; Möllersten, Kenneth; Lundberg, Liv; Rickels, Wilfried |
| Abstract: | Bioenergy with carbon capture and storage (BECCS) is considered as a future key technology to provide baseload electricity, heat, pulp, paper, and biofuels, while also enabling atmospheric carbon dioxide removal (CDR). Sweden seeks to lead the way in bringing this technology up to scale, introducing a EUR 3.6 billion reverse auction scheme to facilitate market entry of companies producing BECCS. We explore instrument design preferences among politicians, regulators, and prospective BECCS operators to identify trade-offs and explore feasible policy design. Based on 35 interviews with experts in the latent BECCS sector in Sweden, we identify under which circumstances prospective operators would be willing to place bids and discuss how actor preferences both align with and challenge auction theory. The analysis concludes that at least four dilemmas need attention. These concerns how to: (1) balance the state’s demand for BECCS to be implemented already in 2030 against the prospective BECCS operators’ fear of the winner’s curse, i.e., a fear of bidding for a contract that turns out to be too costly to implement; (2) allocate contracts at the margin of the auctioneer’s demand for BECCS without driving up costs; (3) design compliance mechanism to achieve effectiveness without undermining efficiency, and; 4) integrate the auction with the voluntary carbon market—if at all—in a manner that safeguards the environmental integrity of the auctions. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:306863 |
| By: | Hikmet Gunay; Xin Meng; Victor Perez |
| Abstract: | In a second-price sequential auction with both global and local bidders, we explore the optimal order for selling heterogeneous goods to maximize efficiency or revenue. Our findings indicate that selling the good with very small variance (almost-zero variance) first yields higher revenue, while selling it second results in an efficient outcome with probability almost 1. We link the optimal selling order to the likelihood of various inefficient outcomes. Specifically, selling the good with small variance first increases the probability of ex-post loss for the global bidder, boosting the seller’s revenue at the expense of overall social welfare. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1271 |
| By: | De Groote, Olivier; Rho, Minyoung |
| Abstract: | We use data from a platform that centralizes a day care matching process. We estimate parents’ preferences and nursery priorities by analyzing parents’ rank-ordered lists and nurseries’ acceptance decisions. We account for strategic behavior by using a novel estimation approach inspired by the dynamic discrete choice framework. We use the estimates to evaluate centralized matching policies tailored to the day care setting. We compare mechanisms and assess the effects of subsidies, increased capacity, and affirmative action. We find that affirmative action policies are crucial for boosting the participation of disadvantaged children, though they increase segregation due to location-based preferences. |
| Keywords: | day care, affirmative action, segregation, centralized matching markets, CCP estimation |
| JEL: | C61 D82 I24 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129960 |
| By: | Matheus V. X. Ferreira; Yotam Gafni; Max Resnick |
| Abstract: | We consider a refinement to the notions of collusion-resistance in transaction fee mechanisms. In particular, we require that the collusion is by itself incentive-compatible and individually rational to all of its participants. We then study the structural properties of these notions, and importantly, characterize the class of collusion-resistant and incentive-compatible transaction fee mechanisms in the single bidder case, and show that this is exactly the class of posted-price where the price is not too prohibitive. We analyze welfare and revenue implications, as well as the shape of the solution space, for both regular and non-regular distributions. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.20853 |