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Core-Selecting Auctions: An Experimental Study

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  • Eiichiro Kazumori

    (Faculty of Economics, University of Tokyo)

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    Abstract

    Many business and policy problems, such as allocation of spectrum rights and financial assets, involve allocation of heterogeneous objects among players with superadditive values. This paper uses laboratory experiments to study core-selecting auctions (clock-proxy auctions of Ausubel, Cramton, and Milgrom (2004)) recently proposed as a solution to this problem. Our experimental design involves three factors. The first factor is the auction design and we consider generalized Vickrey auctions, simultaneous ascending auctions, and clock-proxy auctions. The second factor is the value structure of agents. In addition to a benchmark case of additive values, we considered superadditive value structures which feature the exposure problem and the coordination problem. The third factor is subject characteristics. We ran experiments with professional traders and university students. We found that clock-proxy auctions outperformed generalized Vickrey auctions. Clock-proxy auctions outperformed simultaneous ascending auctions with the exposure problem value structure, and did statistically equally well with the additive and the coordination problem value structure. The result suggests a trade-off between efficiency improvements and complexity in package bidding. An ANOVA of outcomes demonstrated that auction designs were significant, and the interaction terms were often significant. We estimated the effect of auction design on efficiency and revenue and found that its magnitude depended on the valuation structure and subject characteristics. The result suggests that market design is not one-size-fits-all and a successful design builds on an understanding of fine details of the problem environments.

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    Bibliographic Info

    Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-226.

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    Length: 72pages
    Date of creation: Aug 2010
    Date of revision:
    Handle: RePEc:cfi:fseres:cf226

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    1. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics.
    2. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
    3. Jeffrey S. Banks & John O. Ledyard & David P. Porter, 1989. "Allocating Uncertain and Unresponsive Resources: An Experimental Approach," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 1-25, Spring.
    4. Paul Milgrom, . "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Working Papers 98002, Stanford University, Department of Economics.
    5. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei.
    6. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847.
    7. Lawrence M. Ausubel & Peter Crampton & Paul Milgrom, 2004. "The Clock-Proxy Auction: A Practical Combinatorial Auction Design," Discussion Papers 03-034, Stanford Institute for Economic Policy Research.
    8. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, 09.
    9. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
    10. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
    11. Nisan, Noam & Segal, Ilya, 2006. "The communication requirements of efficient allocations and supporting prices," Journal of Economic Theory, Elsevier, vol. 129(1), pages 192-224, July.
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