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Discrete Clock Auctions: An Experimental Study

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Abstract

We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. Both the HRB and LAB auctions maximize revenues and are fully efficient in our setting. Our experimental results indicate that the LAB auction achieves higher revenues. This also is the case in a version of the clock auction with provisional winners. This revenue result may explain the frequent use of LAB pricing. On the other hand, HRB is successful in eliciting true values of the bidders both theoretically and experimentally.

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  • Peter Cramton & Emel Filiz-Ozbay & Erkut Ozbay & Pacharasut Sujarittanonta, 2010. "Discrete Clock Auctions: An Experimental Study," Papers of Peter Cramton 10dca, University of Maryland, Department of Economics - Peter Cramton, revised 2010.
    • Handle: RePEc:pcc:pccumd:10dca
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    5. Lawrence M. Ausubel & Peter Cramton & Emel Filiz-Ozbay & Nathaniel Higgins & Erkut Ozbay & Andrew Stocking, 2009. "Common-Value Auctions with Liquidity Needs: An Experimental Test of a Troubled Assets Reverse Auction," Papers of Peter Cramton 09cvawln, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
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    9. Peter Cramton & Pacharasut Sujarittanonta, 2010. "Pricing Rule in a Clock Auction," Decision Analysis, INFORMS, vol. 7(1), pages 40-57, March.
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    13. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 480-493, 04/05.
    14. Lange, Andreas & Ratan, Anmol, 2010. "Multi-dimensional reference-dependent preferences in sealed-bid auctions - How (most) laboratory experiments differ from the field," Games and Economic Behavior, Elsevier, vol. 68(2), pages 634-645, March.
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    Cited by:

    1. Li, Zhen & Kuo, Ching-Chung, 2011. "Revenue-maximizing Dutch auctions with discrete bid levels," European Journal of Operational Research, Elsevier, vol. 215(3), pages 721-729, December.
    2. Karim L. Anaya & Michael G. Pollitt, 2021. "How to Procure Flexibility Services within the Electricity Distribution System: Lessons from an International Review of Innovation Projects," Energies, MDPI, vol. 14(15), pages 1-26, July.
    3. Shobe, William & Holt, Charles & Huetteman, Thaddeus, 2014. "Elements of emission market design: An experimental analysis of California's market for greenhouse gas allowances," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 402-420.
    4. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 461-490, July.
    5. Peter Cramton & Emel Filiz-Ozbay & Erkut Ozbay & Pacharasut Sujarittanonta, 2012. "Fear of losing in a clock auction," Review of Economic Design, Springer;Society for Economic Design, vol. 16(2), pages 119-134, September.
    6. Peter Cramton, 2012. "Auction Design for Medicare Durable Medical Equipment," Papers of Peter Cramton 11cadm, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    7. Lawrence M. Ausubel & Justin E. Burkett & Emel Filiz-Ozbay, 2017. "An experiment on auctions with endogenous budget constraints," Experimental Economics, Springer;Economic Science Association, vol. 20(4), pages 973-1006, December.
    8. Talebiyan, Hesam & Dueñas-Osorio, Leonardo, 2023. "Auctions for resource allocation and decentralized restoration of interdependent networks," Reliability Engineering and System Safety, Elsevier, vol. 237(C).
    9. Zhen Li & Ching-Chung Kuo, 2013. "Design of discrete Dutch auctions with an uncertain number of bidders," Annals of Operations Research, Springer, vol. 211(1), pages 255-272, December.
    10. Yiakoumi, Despina & Rouaix, Agathe & Phimister, Euan, 2022. "Evaluating capacity auction design for electricity: An experimental analysis," Energy Economics, Elsevier, vol. 115(C).
    11. Fabian Ocker, 2018. "“Bid more, pay less” – overbidding and the Bidder’s curse in teleshopping auctions," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(4), pages 491-508, November.
    12. Ulrich Bergmann & Arkady Konovalov, 2024. "Auction design and order of sale with budget-constrained bidders," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 36-57, March.
    13. Peter Cramton & Sean Ellermeyer & Brett Katzman, 2015. "Designed To Fail: The Medicare Auction For Durable Medical Equipment," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 469-485, January.

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    More about this item

    Keywords

    Auctions; clock auctions; spectrum auctions; experimental economics; behavioral economics; market design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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