Auction Design for Complex Centralized Markets

Stanford University, Stanford CA

Investigators

Abstract

This project will use economic theory and simulations to study, develop, and improve practically implementable auction designs for complex centralized markets. The project will contribute to our understanding of the effectiveness of auction designs that have been used in recent years to sell packages of radio spectrum, electrical power, internet advertising opportunities, and fishing rights. As our understanding of these kinds of markets has grown, we have come to understand that these market methods must be adjusted to simplify communication and computational complexity and allow for specific features such as economics of scale, very numerous differentiated goods, and exposure risks. This award funds research that will develop methods to evaluate and improve recent auction designs and to create entirely new designs. Markets with combinatorial valuations and/or specialized constraints introduce complexity that limits the effectiveness of current auction methods. Under well-known assumptions, market allocations are efficient. However, even when there are no externalities, information asymmetries, or market power, market-clearing prices may fail to exist, may not be unique, or may not be easily computable. In these cases, decentralized economic systems that are guided by market prices may be dynamically unstable. The project will consider the optimal organization of practical exchanges when this is a possibility. Even when market-clearing prices do not exist, auction mechanisms that combine prices and rationing can lead to nearly optimal results. One part of this project will characterize and evaluate the performance of such mechanisms. Sometimes when market clearing resource prices do in fact exist, the relevant resources are so numerous and differentiated that auctions are impractical. Another part of this project will decide how to apply prices in these settings to meet societal goals. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.