Auctions Theory and Its Applications
Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM
- Chair: Bo Liu, University of Electronic Science and Technology of China
Timing of Auctions of Real Options
AbstractThis paper endogenizes auction timing and initiation in auctions of real options. Revenue-maximizing timing deviates from welfare-maximizing or bidders' preferred timing because the information rent the seller pays makes her face a "virtual strike price" higher than the option exercise cost. The irreversible nature of time endows a seller potential control over the winning bidder's eventual option exercise. As long as she does not strongly prefer early exercise, she inefficiently delays the auction; otherwise auction timing is efficient, but option exercises are always inefficiently delayed. When the seller lacks commitment to auction timing and offer finality, bidders always initiate in equilibrium regardless of the divergence in their and the seller's preferred option exercise. The model also predicts that bidder initiation corresponds to faster option exercise, consistent with empirical evidence from the selling and drilling of oil and gas tracts.
How Efficient are Decentralized Auction Platforms?
AbstractWe provide a model of a decentralized, dynamic auction market platform (e.g., eBay) in which a large number of buyers and sellers participate in simultaneous, single-unit auctions each period. Our model accounts for the endogenous entry of agents and the impact of intertemporal optimization on bids. Solving our model with a finite number of bidders is computationally intractable due to the curse of dimensionality, so we prove that a continuum version of our model provides a good approximation of an equilibrium in the finite model. We use the approximation to estimate the structural primitives of our model using Kindle sales on eBay. We find that just over one third of Kindle auctions on eBay result in an inefficient allocation with deadweight loss amounting to 13.5% of total possible market surplus. We also find that partial centralization - for example, running half as many 2-unit, uniform price auctions each day - would eliminate a large fraction of the inefficiency, but yield lower seller revenues. Our results highlight the importance of understanding platform composition effects - selection of agents into the market - in assessing the implications of market design.
University of South Carolina
Pennsylvania State University
Carnegie Mellon University
- D4 - Market Structure, Pricing, and Design
- D8 - Information, Knowledge, and Uncertainty