Experimental and Theoretical Investigations of Auctions

Ohio State University Research Foundation -Do Not Use, Columbus OH

Investigators

Abstract

Auctions are of growing practical and theoretical importance in economics. Recent applications of auctions to sales of government assets have had spectacular success: Led by the Federal Communications Commission (FCC), the U. S. government has conducted a number of sales of air wave rights raising a total of $23.9 billion in selling over 10,000 licenses between July 1994 and July 2000. Even more spectacular, in an auction ending in April 2000, the British government raised 22.5 billion pounds ($35.53 billion) from the sale of "third generation" mobile phone licenses. Thus, auctions promise to both increase seller revenue and lead to more efficient allocation of assets (delivering assets to the buyers who value them the most). Further, auctions play a prominent role in the theory of exchange as they remain one of the simplest and most familiar means of price determination in the absence of intermediate market makers. And they serve as valuable illustrations, and one of the most prominent applications, of the theory of games (strategic interactions) in cases where agents possess private information (i.e., information which rival agents are not privy to). In spite of these successes there remain a number of open questions regarding optimal auction design. The research will involve both theoretical and experimental studies of a number of open questions in auction design. These include: 1. Comparing the efficiency of alternative forms of the multi-object Vickrey auction, an auction structure which, in theory at least, can deliver 100% efficiency when alternative auction structures fail to do so. What past research has shown is that the details of the auction design canmake it easier for bidders to approach the 100% efficiency goal. We will continue our study of these issues. 2. Investigating alternative auction forms for cases where one or more bidders place a somewhat higher value on the objects for sale than do rival bidders. In cases such as these there is a tendency for the advantaged bidder (even when this advantage is very small) to scare off rivals, which can lead to unnecessarily low selling prices for the objects in question. Alternative auction forms promise to help alleviate this problem. 3. Investigating multi-unit demand auctions in which there exist synergies, or complementarities, between the items up for auction. Such auctions create numerous problems in achieving efficient auction outcomes. 4. Understanding the effects of bidding in teams, as opposed to individual bidders. Most past auction experiments have focused on the latter, whereas in many real world setting bidding is done in teams.