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Exposure problem in multi-unit auctions

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  • Meng, Xin
  • Gunay, Hikmet

Abstract

We characterize the optimal bidding strategies of local and global bidders for two heterogeneous licenses in a multi-unit simultaneous ascending auction (SAA) like the one used in the 2008 Canadian Advanced Wireless Spectrum license auction. The global bidder wants to win both licenses to enjoy synergies; therefore, she bids more than her stand-alone valuation of a license. This exposes her to the risk of losing money even when she wins all licenses. We determine the optimal bidding strategies in the presence of an exposure problem. By using simulation methods, first, we show that the probability of inefficient allocations in the simultaneous ascending auction can be up to 9 percent. Second, we show that the global bidder can end up with a loss with 6 percent probability depending on the distribution. We also investigate the relation between inefficient allocation and the revenue of SAA and VCG auctions.

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  • Meng, Xin & Gunay, Hikmet, 2017. "Exposure problem in multi-unit auctions," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 165-187.
    • Handle: RePEc:eee:indorg:v:52:y:2017:i:c:p:165-187
    DOI: 10.1016/j.ijindorg.2017.02.005
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    Cited by:

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    3. Meng, Xin & Gunay, Hikmet, 2022. "Different Number of Bidders in Sequential Auctions," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 63(1), pages 72-85, June.
    4. GUNAY, Hikmet & MENG, Xin, 2017. "Which good to sell first in a sequential auction?," Discussion paper series HIAS-E-45, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    More about this item

    Keywords

    Multi-unit auctions; Vickrey Clarke Groves (VCG) mechanism; Exposure problem; Synergies; Complementarity; Spectrum license auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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