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An equilibrium analysis of the simultaneous ascending auction

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  • Jacob K. Goeree
  • Yuanchuan Lien

Abstract

We analyze the dynamic simultaneous ascending auction (SAA), which was pioneered by the US Federal Communications Commission (FCC) in 1994 and has since become the standard to conduct large-scale, large-stakes spectrum auctions around the world. We consider an environment where local bidders, each interested in a single item, compete against one or more global bidders with super-additive values for combinations of items. In the SAA, competition takes place on an item-by-item basis, which creates an exposure problem for global bidders - when competing aggressively for a package, a global bidder may incur a loss when winning only a subset. We characterize the Bayes-Nash equilibria of the SAA, evaluate the impact of the exposure problem on revenue and efficiency, and compare its performance to that of the benchmark Vickrey-Clarke-Groves (VCG) mechanism. We show that individual and social incentives are aligned in the SAA in the sense that bidders' drop-out levels maximize expected welfare. Unlike the VCG mechanism, however, the SAA is not fully efficient because when a bidder drops out, information about others' values has been only partially revealed. Like the VCG mechanism, the SAA exhibits perverse revenue properties: due to the exposure problem, the SAA may result in non-core outcomes where local bidders obtain items at very low prices, and seller revenue can be decreasing in the number of bidders. Moreover, the SAA may result in lower revenues than the VCG mechanism. Finally, when the number of items grows large, the SAA and VCG mechanisms become (efficiency and revenue) equivalent.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 428.

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Date of creation: Sep 2009
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Handle: RePEc:zur:iewwpx:428

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Keywords: Simultaneous ascending auction; exposure problem; auction design;

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References

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  1. Krishna, Vijay & Rosenthal, Robert W., 1996. "Simultaneous Auctions with Synergies," Games and Economic Behavior, Elsevier, vol. 17(1), pages 1-31, November.
  2. Lawrence M. Ausubel & Peter Cramton & R. Preston McAfee & John McMillan, 1998. "Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions," Papers of Peter Cramton 97jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  3. Peter Cramton & Yoav Shoham & Richard Steinberg, 2004. "Combinatorial Auctions," Papers of Peter Cramton 04mit, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
  4. Sandro Brusco & Giuseppe Lopomo, 2005. "Simultaneous Ascending Auctions with Complementarities and Known Budget Constraints," Department of Economics Working Papers 05-13, Stony Brook University, Department of Economics.
  5. Paul Milgrom, . "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Working Papers 98002, Stanford University, Department of Economics.
  6. Gian Albano & Fabrizio Germano & Stefano Lovo, 2006. "Ascending auctions for multiple objects: the case for the Japanese design," Economic Theory, Springer, vol. 28(2), pages 331-355, 06.
  7. Sandro Brusco & Giuseppe Lopomo, 2004. "Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities," Levine's Bibliography 122247000000000385, UCLA Department of Economics.
  8. Zheng, Charles Z., 2012. "Jump bidding and overconcentration in decentralized simultaneous ascending auctions," Games and Economic Behavior, Elsevier, vol. 76(2), pages 648-664.
  9. Rosenthal, Robert W. & Wang, Ruqu, 1996. "Simultaneous Auctions with Synergies and Common Values," Games and Economic Behavior, Elsevier, vol. 17(1), pages 32-55, November.
  10. Szentes, Balazs & Rosenthal, Robert W., 2003. "Three-object two-bidder simultaneous auctions: chopsticks and tetrahedra," Games and Economic Behavior, Elsevier, vol. 44(1), pages 114-133, July.
  11. Szentes, Balazs & Rosenthal, Robert W., 2003. "Beyond chopsticks: Symmetric equilibria in majority auction games," Games and Economic Behavior, Elsevier, vol. 45(2), pages 278-295, November.
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Cited by:
  1. Sano, Ryuji, 2012. "Non-bidding equilibrium in an ascending core-selecting auction," Games and Economic Behavior, Elsevier, vol. 74(2), pages 637-650.

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