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An equilibrium analysis of the simultaneous ascending auction

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Author Info
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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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp428.

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

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

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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  1. Brusco, Sandro & Lopomo, Giuseppe, 2002. "Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities," Review of Economic Studies, Blackwell Publishing, vol. 69(2), pages 407-36, April.
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  2. Lawrence M. Ausubel & Peter Cramton & R. Preston McAfee & John McMillan, 1997. "Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(3), pages 497-527, 09. [Downloadable!] (restricted)
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  3. Sandro Brusco & Giuseppe Lopomo, 2009. "Simultaneous ascending auctions with complementarities and known budget constraints," Economic Theory, Springer, vol. 38(1), pages 105-124, January. [Downloadable!] (restricted)
  4. Paul Milgrom, 2000. "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 245-272, April. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  7. Krishna, Vijay & Rosenthal, Robert W., 1996. "Simultaneous Auctions with Synergies," Games and Economic Behavior, Elsevier, vol. 17(1), pages 1-31, November. [Downloadable!] (restricted)
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