Auction Design with Non-Convex Costs: An Experimental Approach
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Date: 03-13-2007
Start Time:
1:00pm
End Time: 2:00pm
Speaker: Wedad Elmaghraby, University of Maryland
Location: Uris 333
Abstract:
Auctions are increasingly becoming standard instruments for
procurement. However, the performance of procurement auctions when
suppliers have non-convex costs are poorly understood. Because many
industries are characterized by some variant of a fixed plus variable
cost structure, improving our understanding of how auctions perform in
this context is of practical importance.
We present results from a series of experiments with human subjects at
the University of Maryland. Subjects participated as suppliers in an
auction, each with the capacity to supply up to two units of a good,
and bid to supply a portion of the buyer's fixed demand of 3 units. We
study the performance of 3 different auction formats: (1) uniform-price
one-part bid, (2) uniform-price two-part bid, (3) discriminatory-price
two-part bid.
We find that the largest determinant of the efficiency of the auction
is the bid structure: The bid expressivity/flexibility provided under
two-part bids does not lead to increased 'strategic' bidding behavior,
and greatly improves the efficiency of the auction. Interestingly, the
pricing rule has minimal effect on the efficiency of the auction, while
it greatly affects the buyer's procurement costs.
Bio:
Wedad J. Elmaghraby is an Assistant Professor of Management Science at the Robert H. Smith School of Business, University of Maryland, College Park . Prior to joining the Smith School, she was an the faculty of the School of Industrial and Systems Engineering at Georgia Institute of Technology and NYU Stern School of Business in the Operations Management group. Her current research interests are (1) the design of competitive procurement auctions in business-to-business markets and (2) pricing in markets where buyers behave strategically. Her current areas of application are e-commerce, logistics, supply chain management in the electronics industry and energy markets.