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Abstract:
The third generation UMTS auction in Germany raised an enormous amount of revenue, and at the same time achieved a more competitive market structure than other UMTS auctions in Europe. The present paper explains the design of that auction, and presents a game theoretic explanation of observed events during the crucial phase of that auction, which have puzzled several observers. In addition, the paper evaluates the merit of the German UMTS auction design, relative to the English design, that was predominantly employed in Europe.

Auctions, Telecommunications, Industrial Organization, Game Theory

Abstract:
In their seminal solution of the chain store paradox Kreps and Wilson assumed that the incumbent monopolist is predisposed, with a small probability, to ght entry. Milgrom and Roberts suggested to view this predisposition to ght as a result of precommitment to an aggressive course of action. However, they did not examine whether such an ability to make commitments is actually chosen by a rational incumbent monopolist. The present paper fills this gap. We assume that the monopolist has access to an appropriate commitment mechanism, with a small probability. Due to the possibility of misunderstanding or communication error, commitments are not perfectly observable. Otherwise, the assumptions of Kreps and Wilson are maintained. These plausible modifications have drastic implications: Precommitment becomes useless, and reputation effects break down; Selten's chain store paradox comes back in full force.

Abstract:
This paper analyzes a simple, repeated game of simultaneous entry and pricing. We report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market breaks down with higher probability, and the competitive outcome becomes less likely. More potential competition lowers welfare--another Bertrand paradox. The model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly.

Abstract:
In many auctions, the auctioneer is an agent of the seller. This delegation invites corruption. In this paper we propose a model of corruption, examine how corruption affects the auction game, how the anticipation of corruption affects bidding, and how it altogether changes the revenue ranking of typical auctions. In addition we characterize incentive schemes that may prevent corruption, and compare them to the fee schedules employed by major auction houses.

Auctions, Procurement, Corruption, Collusion, Coalitions

Abstract:
This paper analyzes a two-stage sealed-bid auction that is frequently employed in privatization, takeover, and merger and acquisition contests. This auction format yields the same expected revenue as the open ascending (English) auction, yet is less susceptible to preemptive bidding and collusion.

Abstract:
This paper gives an account of events, and explains some systematic reasons of the UMTS auction flop in Switzerland. Apart from general market developments, which could not have been anticipated, we argue that auction design which was introduced in England and adopted in Switzerland and elsewhere is a cause of the disappointing performance of many UMTS auctions in Europe, of which Switzerland is just one particularly pronounced example.The regulator would have been better advised to import some key ingredients of the auction design employed in Germany and Austria. This would have assured higher revenue or more competition. The paper closes with several proposals on how one should conduct future spectrum auctions.

Spectrum Auctions, Telecommunications, Industrial Organization

Abstract:
This paper solves the equilibrium bid functions of third-- and lower--price auctions. In these auctions, equilibrium bids exceed bidders' valuations, and bidders raise their bids if one moves to a lower price auction, and lower bids if the number of bidders is increased. Third-- and lower--price auctions are unappealing under risk aversion, which in turn may make them appealing when the auction is a substitute for small scale gambling, as in many Internet auctions. Moreover, in the presence of a corrupt agent-auctioneer, an auction may turn out to be third-- or lower--price, even though it was set up as a second--price or hybrid English auction.

auctions, procurement, corruption

Abstract:
This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke-Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms generally avoid budget deficits and prevent excessive entry.

Mechanism Design, Natural Oligopoly, Auctions, Entry

Abstract:
In many auctions, the auctioneer is an agent of the seller. This invites corruption. We propose a model of corruption in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. We characterize equilibrium bidding in first- and second-price auctions, show how corruption distorts the allocation, and why both the auctioneer and bidders may have a vested interest in maintaining corruption. Bid rigging is initiated by the auctioneer after bids have been submitted in order to minimize illegal contact and to realize the maximum gain from corruption.

Auctions, procurement, corruption, right of first refusal, numerical methods

Abstract:
The second-generation GSM spectrum auction in Germany is probably the most clear cut example of a low price outcome in a simultaneous ascending-bid auction. The present paper gives an account of the events, describes the auction rules and market conditions, and provides a theoretical explanation of low price equilibria in simultaneous, ascending-bid auctions. In particular it is shown that the low price equilibrium that implements the efficient allocation is the unique perfect equilibrium of that game.

Multi-Unit Auctions, Spectrum Auctions, Telecommunications, Industrial Organization, Game Theory

Abstract:
We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects in the form of stochastic economies or diseconomies of scale. We show that economies give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first- and second-price auctions are not always revenue equivalent. Indeed, economies of scale make the second-price format more profitable for the seller, whereas revenue equivalence is preserved in the case of diseconomies.

Abstract:
We review different kinds of corruption that have been observed in procurement auctions and categorize them. We discuss means to avoid corruption, by choice of preferable auction formats, or with the help of technological tools, such as secure electronic bidding systems. Auctions that involve some soft elements, such as complex bids consisting of technical and financial proposals, are particularly prone to corruption. We do not believe that it is possible to eradicate corruption altogether in such situations, but we discuss means to make it less likely.

auctions, corruption

Abstract:
We consider an augmented version of the symmetric private value auction model with independent types. The augmentation, intended to illustrate reality, concerns information bidders have about their opponents. To the standard assumption that every bidder knows his type and the distribution of types is common knowledge we add the assumption that the ranking of bidders' valuations is common knowledge.

This set-up induces a particular asymmetric auction model that raises serious technical difficulties. We prove existence and uniqueness of equilibrium in pure strategies in the two bidder case. We also show that the model generally has no analytic solution. If the distribution of valuations is uniform, both bidders bid pointwise more aggressively relative to the standard symmetric case. However, this property does not apply to all distributions of valuations. Finally, we also provide a numerical solution of equilibrium bid functions for the uniform distribution case.

Abstract:
We consider auction games where, prior to the auction, bidders spend resources to increase their valuations. The market game is solved by solving an equivalent auxiliary social choice problem. We show that standard auctions are fully efficient, whereas reserve price requirements entail a double inefficiency. Moreover, we explain how optimal auctions differ from the well-known static optimum, and sketch the impact of information spillovers.

Abstract:
We review an asymmetric auction experiment. Based on Plum (1992) private valuations of the two bidders are independently drawn from distinct but commonly known distributions, one of which stochastically dominating the other. We test the qualitative properties of that model of asymmetric auctions, in particular whether the weak bidder behaves more aggressively than the strong and then test bidders' preference for first- vs. second-price auctions.

Sealed Bid Auctions, Asymmetric Bidders, Private-Independent Values, Experiments

Abstract:
The present note analyzes the Simultaneous Ascending Bid Auction with arbitrarily many bidders with decreasing marginal valuations under complete information. We show that the game is solvable by iterated elimination of weakly dominated strategies if the efficient allocation assigns at least one unit to every player and if bid increments are sufficiently small. In that unique equilibrium, bidders immediately reduce their demand to the efficient allocation, and the auction ends in the first round of bidding.

Multi-unit auctions

Abstract:
We study a partnership that anticipates its possible dissolution. In our model, partnerships form in order to take advantage of complementary skills; although new opportunities may arise that make partners' skills useless. We characterize the optimal, incentive-compatible partnership contract that can be implemented by a simple call option, and then analyze the commonly used buy-sell provision. We show that this dissolution rule gives rise to inefficiency, either in the form of excessive dissolutions combined with underinvestment or efficient dissolutions combined with overinvestment. However, supplementing the buy-sell provision with the right to veto may restore efficiency.

Abstract:
We consider the procurement of a complex, indivisible good when bid preparation is costly, assuming a population of heterogeneous contractors. Shortlisting is introduced to implement the optimal number of bidders, and we explore whether the procurer should reimburse the nonrecoverable cost of preparing a bid in whole or in part. We find that a reimbursement policy is profitable for the procurer only if performance and bidding costs are negatively correlated. Moreover, negative rebates (entry fees) always dominate positive rebates.

Procurement, Auctions, Entry

Abstract:
We reconsider the justifications of R&D subsidies by Spencer and Brander (1983) and others by allowing firms to pool R&D investments and license innovations. In equilibrium R&D joint ventures are formed and licensing occurs in a way that eliminates the strategic benefits of R&D investment in the subsequent oligopoly game. Nevertheless, governments subsidize their domestic firms in order to raise their bargaining position in the joint venture. This holds true regardless of whether governments offer either unconditional or conditional subsidies. This suggests an alternative explanation of the observed proliferation of R&D subsidies.

Patent licensing, industrial organization, R&D subsidies, research joint ventures

Abstract:
In a recurring auction early bids may reveal bidders' types, which in turn affects bidding in later auctions. Bidders take this into account and may bid in a way that conceals their private information until the last auction is played. The present paper analyzes the equilibrium of a sequence of first-price auctions assuming bidders have stable private values. We show that signal-jamming occurs and explore the dynamics of equilibrium prices.

Auctions, Signaling, Price Competition

Abstract:
This paper considers one-sided scheduling problems, where a schedule of service is arranged at one location, without regard to other schedules. Typically, such scheduling problems are handled on a first-come-first-serve basis, which is grossly inefficient. The present paper proposes a scheduling mechanism that is a non-standard auction, in which the allocation is ruled by evaluating combinations of bids. The proposed mechanism implements the efficient allocation in dominant strategies and is deficit-free. Since that mechanism is suitable for the scheduling problems at sea-ports, loading or unloading at sea-ports is used as an illustration.

Auctions, rationing

Abstract:
Partnerships form and dissolve. Dissolution often requires a change in property rights, from joint to single ownership, in the hands of one of the partners. This calls for a dissolution rule that assigns full property rights to the partner who makes the best use of these assets, and assures fair compensation of those who give up their ownership rights. The present paper analyzes two simple auction rules to solve these problems.

Auctions, partnership dissolution, divorce rules, inheritance rules, mechanism design, revenue equivalence theorem

Abstract:
This paper revisits the licensing of a non--drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed--fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant.

Licensing, Auctions, Royalty, Innovation, R&D, Mechanism Design

Abstract:
This paper evaluates the typically applied rules for awarding R&D subsidies. We identify two sources of ineciency: the selection based on a ranking
of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these inefficiencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation.

Research, Subsidies, Experimental Economics