Abstract

http://ssrn.com/abstract=2050191
 
 

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Measuring the Performance of Large-Scale Combinatorial Auctions: A Structural Estimation Approach


Sang Won Kim


CUHK Business School

Marcelo Olivares


Columbia University - Columbia Business School - Decision Risk and Operations; University of Chile - Departamento de Ingenieria Industrial

Gabriel Y. Weintraub


Columbia University - Columbia Business School - Decision Risk and Operations

December 1, 2012

Columbia Business School Research Paper No. 12/32

Abstract:     
The main advantage of a procurement combinatorial auction (CA) is that it allows suppliers to express cost synergies through package bids. However, bidders can also strategically take advantage of this flexibility, by discounting package bids and "inflating"' bid prices for single-items, even in the absence of cost synergies; the latter behavior can hurt the performance of the auction. It is an empirical question whether allowing package bids and running a CA improves performance in a given setting. In this paper, we develop a structural estimation approach that estimates the firms' cost structure using bidding data, and we use these estimates to evaluate the performance of the auction. To overcome the computational difficulties arising from the large number of bids observed in large-scale CAs, we propose a novel simplified model of bidders' behavior based on pricing package characteristics. We apply our method to the Chilean school meals auction, in which the government procures half a billion dollars' worth of meal services every year and bidders submit thousands of package bids. Our estimates suggest that bidders' cost synergies are economically significant in this application (~5%), and the current CA mechanism achieves high allocative efficiency (~98%) and reasonable margins for the bidders (~5%). Overall, this work develops the first practical tool to evaluate the performance of large-scale first-price CAs commonly used in procurement settings.

Number of Pages in PDF File: 37

Keywords: Combinatorial auctions, Procurement, Structural estimation, Econometrics, Public sector applications

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Date posted: May 3, 2012 ; Last revised: June 12, 2013

Suggested Citation

Kim, Sang Won and Olivares, Marcelo and Weintraub, Gabriel Y., Measuring the Performance of Large-Scale Combinatorial Auctions: A Structural Estimation Approach (December 1, 2012). Columbia Business School Research Paper No. 12/32. Available at SSRN: http://ssrn.com/abstract=2050191 or http://dx.doi.org/10.2139/ssrn.2050191

Contact Information

Sang Won Kim
CUHK Business School ( email )
Shatin, N.T.
Hong Kong
Marcelo Olivares (Contact Author)
Columbia University - Columbia Business School - Decision Risk and Operations ( email )
3022 Broadway
Uris Hall, #417
New York, NY 10027
United States
HOME PAGE: http://www.columbia.edu/~mo2338/index.htm

University of Chile - Departamento de Ingenieria Industrial ( email )
Republica 701 Santiago
Chile
Gabriel Y. Weintraub
Columbia University - Columbia Business School - Decision Risk and Operations ( email )
New York, NY
United States

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References:  27
Citations:  2
Footnotes:  37

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