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Dynamic Decision Making in Sequential Business-to-Business Auctions: A Structural Econometric Approach

Author

Listed:
  • Yixin Lu

    (School of Business, George Washington University, Washington, District of Columbia 20052)

  • Alok Gupta

    (Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455)

  • Wolfgang Ketter

    (Faculty of Management, Economics and Social Sciences, University of Cologne, 50931 Köln, Germany; Rotterdam School of Management, Erasmus University, 3062 PA Rotterdam, Netherlands)

  • Eric van Heck

    (Rotterdam School of Management, Erasmus University, 3062 PA Rotterdam, Netherlands)

Abstract

We develop a dynamic structural model of competitive bidding in multiunit sequential business-to-business auctions. Our model accounts for two notable characteristics of these auctions: (i) bidders have multiple purchase opportunities for the same product, and (ii) winning bidders in each round can acquire multiple units of the same product. We apply the model to bidding data from the world’s largest flower wholesale market at which trades are facilitated through fast-paced, sequential, Dutch auctions. Using a two-step estimation approach, we are able to recover the structural parameters effectively and efficiently. We then conduct policy counterfactuals to evaluate the performance of alternative design choices. The results suggest that the current auction practice still has ample room for improvement. In light of this, we propose an optimization framework that can facilitate auctioneers’ decisions in making the trade-off between revenue maximization and operational efficiency.

Suggested Citation

  • Yixin Lu & Alok Gupta & Wolfgang Ketter & Eric van Heck, 2019. "Dynamic Decision Making in Sequential Business-to-Business Auctions: A Structural Econometric Approach," Management Science, INFORMS, vol. 65(8), pages 3853-3876, August.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:8:p:3853-3876
    DOI: 10.1287/mnsc.2018.3118
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