Auctions

Quality in Supply Chain Design Auctions for Supply Chain

Outline

Effective Auction Design  Single Object  Multiple Homogeneous Objects

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Combinatorial Auctions

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Effective Auction Design: Auction Defined (Wellman 2007)

 Most influential and widely studied topics in economics over the last forty years  Ask and answer the most fundamental questions in economics:

 Who should get the goods and at what prices?

 Provide the micro-foundation of markets  Many modern markets are organized as auctions

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Effective Auction Design: Auction Defined (Wellman 2007)

Any negotiation process that is:  Mediated  Well-specified (runs according to explicit rules: a mechanism)  Market-based (determines an exchange in terms of standard currency)

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Effective Auction Design: Auction Classification

 Rules of the auction,

 such as ascending versus sealed bid

 Auction environments

 numbers of sellers and buyers  number of items being traded  preferences of the parties

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Effective Auction Design: Private Value Model (Vickrey) Benchmark environment:

 Each bidder has a value for each package of items  These values do not depend on the private information of the other bidders  Each bidder knows his values, but not the values of the other bidders  Example…

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Effective Auction Design: Challenge

 Answer the most fundamental question:

Who should get the goods and at what prices?  In a strategic environment

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Effective Auction Design: Two Fundamental Prescriptions

Price paid by a player is as independent as possible of her own bids (William Vickrey, 1961)

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Ideally, the winner’s price should depend solely on opposing participants’ bids—as in the sealed-bid, second-price auction—so that each participant has full incentive to truthfully reveal her value.

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Effective Auction Design: Two Fundamental Prescriptions Cont.

Structured in an open fashion that maximizes the information made available to each...