An Equilibrium Analysis of the Simultaneous Ascending Auction
Institute for Empirical Research in Economics University of Zurich Working Paper No. 428
21 Pages Posted: 23 Sep 2009
Date Written: September 2009
Abstract
We analyze the dynamic simultaneous ascending auction (SAA), which was pioneered by the US Federal Communications Commission (FCC) in 1994 and has since become the standard to conduct large-scale, large-stakes spectrum auctions around the world. We consider an environment where local bidders, each interested in a single item, compete against one or more global bidders with super-additive values for combinations of items. In the SAA, competition takes place on an item-by-item basis, which creates an exposure problem for global bidders when competing aggressively for a package, a global bidder may incur a loss when winning only a subset. We characterize the Bayes-Nash equilibria of the SAA, evaluate the impact of the exposure problem on revenue and efficiency, and compare its performance to that of the benchmark Vickrey-Clarke-Groves (VCG) mechanism. We show that individual and social incentives are aligned in the SAA in the sense that bidders' drop-out levels maximize expected welfare. Unlike the VCG mechanism, however, the SAA is not fully efficient because when a bidder drops out, information about others' values has been only partially revealed. Like the VCG mechanism, the SAA exhibits perverse revenue properties: due to the exposure problem, the SAA may result in non-core outcomes where local bidders obtain items at very low prices, and seller revenue can be decreasing in the number of bidders. Moreover, the SAA may result in lower revenues than the VCG mechanism. Finally, when the number of items grows large, the SAA and VCG mechanisms become (efficiency and revenue) equivalent.
Keywords: simultaneous ascending auction, exposure problem, auction design
JEL Classification: D44
Suggested Citation: Suggested Citation
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