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from Part II - Multi-Object Auction Design
Published online by Cambridge University Press: 08 December 2017
Before we introduce various combinatorial auction formats, we will discuss a simple and widespread auction format for selling multiple objects, the simultaneous multiround auction (SMRA). It allows bidders to bid on multiple objects simultaneously and win multiple objects. The SMRA was designed for the US Federal Communications Commission in the early 1990s, and it has been the standard auction format for selling spectrum worldwide for many years. It is also easy to implement and therefore a natural candidate for many multi-object markets. However, it can also lead to substantial strategic problems for bidders. We discuss several opportunities for profitable manipulation, which will provide a motivation for the alternative auction designs discussed in the remainder of this book.
SMRA Rules
The SMRA is an extension of the English auction to more than one item. All the items are sold at the same time, each with a price associated with it, and the bidders can bid on any number of items. The auction proceeds in rounds, which are specific periods of time in which all bidders can submit bids. After a round is closed the auctioneer discloses who is winning and the price of each item, which coincides with the highest bid submitted on the item. There are differences in the level of information revealed about other bidders’ bids. Sometimes all bids are revealed after each round; sometimes only prices of the currently winning bids are published.
The bidding continues until no bidder is willing to raise the bid on any item further. In other words, if in one round no new bids are placed, the bidders receive the spectrum for which they hold the highest active bid; then the auction ends, with each bidder winning the blocks on which she has the highest bid, and paying this bid price for any item won.
The SMRA uses simple activity rules, which force bidders to be active from the start. Without such rules, bidders might be tempted to hide their demand and wait to see how prices develop before they start bidding. Monotonicity rules, where bidders cannot bid on more items in later rounds, are regularly used. This forces bidders to be active from the start. Activity rules can be considered to be a major innovation of this auction format.
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