9 results
7 - Spectrum Auction Design
- from Part II - The Combinatorial Clock Auction Designs
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- By Peter Cramton, Department of Economics, University of Maryland
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
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- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
- Print publication:
- 26 October 2017, pp 141-169
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Summary
Introduction
Fred Kahn recognized the important role of market design in improving how markets work. He believed that prices should be set in an open competitive process, rather than administratively. I had the pleasure of working with Fred on a project to evaluate the pricing rule in California's electricity market.We examined whether the electricity market should use uniform pricing or pay-as-bid pricing (Kahn et al. 2001). In this tribute to Fred Kahn, I also focus on auction design, but in the communications industry.
Spectrum auctions have been used by governments to assign and price spectrum for about 20 years. Over those years, the simultaneous ascending auction, first introduced in the US in 1994, has been the predominant method of auctioning spectrum. The auctions have proved far superior to the prior methods of beauty contests and lotteries (Cramton 1997; Milgrom 2004).
Despite the generally positive experience with the simultaneous ascending auction, several design issues have surfaced. Some were addressed with minor rule changes. For example, bidders’ use of trailing digits to signal other bidders and support tacit collusion was eliminated by limiting bids to integer multiples of the minimum increment (Cramton and Schwartz 2002). However, many other design problems remain. In this paper, I identify these problems, and describe a new approach—the combinatorial clock auction—which is based primarily on the clock-proxy auction (Ausubel et al. 2006), which addresses the main limitations of the simultaneous ascending auction.
My focus here is on spectrum auction design, rather than spectrum policy more generally. Certainly, communications regulators face many other critical challenges, such as how best to free up new spectrum for auction (Cramton et al. 1998), or whether an auction is needed at all (FCC 2002). For some allocations, it is better to set aside the spectrum for common property use, as is done with unlicensed spectrum. In particular, for applications that do not create additional scarcity, the commons model is better than the auction model.
6 - The Clock-Proxy Auction: A Practical Combinatorial Auction Design
- from Part II - The Combinatorial Clock Auction Designs
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- By Lawrence M. Ausubel, Department of Economics, University of Maryland, Peter Cramton, Department of Economics, University of Maryland, Paul R. Milgrom, Department of Economics, Stanford University
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
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- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
- Print publication:
- 26 October 2017, pp 120-140
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Summary
Introduction
In this chapter we propose a method for auctioning many related items. A typical application is a spectrum sale in which different bidders combine licenses in different ways. Some pairs of licenses may be substitutes and others may be complements. Indeed, a given pair of licenses may be substitutes for one bidder but complements for another, and may change between substitutes and complements for a single bidder as the prices of the other licenses vary. Our proposed method combines two auction formats—the clock auction and the proxy auction—to produce a hybrid with the benefits of both.
The clock auction is an iterative auction procedure in which the auctioneer announces prices, one for each of the items being sold. The bidders then indicate the quantities of each item desired at the current prices. Prices for items with excess demand then increase, and the bidders again express quantities at the new prices. This process is repeated until there are no items with excess demand.
The ascending proxy auction is a particular package bidding procedure with desirable properties (see Ausubel and Milgrom 2002, 2006). The bidders report values to their respective proxy agents. The proxy agents iteratively submit package bids on behalf of the bidders, selecting the best profit opportunity for a bidder given the bidder's inputted values. The auctioneer then selects the provisionally winning bids that maximize revenues. This process continues until the proxy agents have no new bids to submit.
The clock-proxy auction is a hybrid auction format that begins with a clock phase and ends with a final proxy round. First, bidders directly submit bids in a clock auction, until there is no excess demand for any item. Then bidders have a single opportunity to input proxy values. The proxy round concludes the auction. All bids are kept live throughout the auction. There are no bid withdrawals. The bids of a particular bidder are mutually exclusive. There is an activity rule throughout the clock phase and between the clock phase and the proxy round.
10 - Quadratic Core-Selecting Payment Rules for Combinatorial Auctions
- from Part II - The Combinatorial Clock Auction Designs
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- By Robert Day, School of Business, University of Connecticut, Peter Cramton, Department of Economics, University of Maryland
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
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- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
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- 26 October 2017, pp 195-225
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Introduction
Combinatorial auctions represent one of the most prominent areas of research in the intersection of Operations Research (OR) and Economics. First proposed for practical governmental applications by Rassenti et al. (1982), a combinatorial auction (CA) is an auction for many items in which bidders submit bids on combinations of items, or packages. CAs also are referred to as “package auctions” or auctions with “package bidding.” In a general CA, a bidder may submit bids on any arbitrary collection of packages. The “winner-determination problem” identifies the value maximizing assignment given the package bids. This problem is as complex as the Weighted Set-Packing problem, and hence NP-hard (see Rothkopf et al. 1998).
Thus, in the many real-world applications of CAs, the computational techniques of OR facilitate more efficient economic outcomes in environments too complex for classical (i.e., non-computational) economic theory. Conversely, the game-theoretic framework surrounding CAs provides a host of new computational challenges and optimization problems for OR.
One critical element of any CA is the pricing rule, which determines what each winner pays for the package won. In this paper, we present a new class of optimization based pricing rules for combinatorial auctions in general, demonstrate some of their unique features, and elaborate upon some properties of the larger class of core-selecting mechanisms. We also describe the use of this algorithm for recent and upcoming spectrum-license auctions in the United Kingdom, for upcoming spectrum auctions in several European countries (e.g., the Netherlands, Denmark, Portugal, and Austria), and for use in the United States for the Federal Aviation Administration's (FAA) proposed allocation of landing rights to control congestion at airports. Further, we provide the relevant economic interpretation and theoretical basis for our algorithm's various features.
The use of auctions for allocating spectrum-license-rights to telecommunications companies gained prominence in 1994 when the Federal Communications Commission (FCC) began to use a Simultaneous Ascending Auction (SAA) to sell spectrum licenses in the United States. The initial design, which is still used today with only slight modifications, avoided the idea of a “combinatorial” or “package” auction, in which bidders bid on packages of licenses because of the inherent computational difficulty.
3 - The Efficiency of the FCC Spectrum Auctions
- from Part I - The Simultaneous Multiple-Round Auction
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- By Peter Cramton, Department of Economics, University of Maryland
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
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- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
- Print publication:
- 26 October 2017, pp 54-61
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From July 1994 to July 1996, the Federal Communications Commission (FCC) conducted nine spectrum auctions, raising about $20 billion for the U.S. Treasury. The auctions assigned thousands of licenses to hundreds of firms. These firms are now in the process of creating the next generation of wireless communication services. The questions addressed in this note are: Were the auctions efficient? Did they award the licenses to the firms best able to turn the spectrum into valuable services for consumers?
In addressing these questions, I focus on the narrow question of license assignment. Assignment is the second step in the process of utilizing spectrum. The first step is the allocation of the spectrum for licensing. The allocation defines the license (the frequency band, the geographic area, the time period, and the restrictions on use). I focus on assignment, since that is what the FCC spectrum auctions were asked to do. More general auctions that determine aspects of the allocation, such as band plans, have yet to be implemented.
Why should we care about auction efficiency? If resale is allowed, will not postauction transactions fix any assignment inefficiencies? The answer is “yes” in a Coasean world without transaction costs. However, transaction costs are not zero. Postauction transactions are often made difficult by strategic behavior between parties with private information and market power. The experience with the cellular lotteries is a case in point. It took a decade of negotiations and private auctions for the eventual service providers to acquire desirable packages of licenses from the lottery winners. Efficient auctions are possible before assignments are made but may become impossible after an initial assignment. The problem is that the license holder exercises its substantial market power in the resale of the license. For this reason, it is important to get the assignment right the first time.
9 - Dynamic auctions in procurement
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- By Lawrence M. Ausubel, Professor of Economics University of Maryland, USA, Peter Cramton, Professor of Economics University of Maryland, USA
- Edited by Nicola Dimitri, Università degli Studi, Siena, Gustavo Piga, Università degli Studi di Roma 'Tor Vergata', Giancarlo Spagnolo, Stockholm School of Economics
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- Book:
- Handbook of Procurement
- Published online:
- 04 November 2009
- Print publication:
- 28 September 2006, pp 220-246
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Introduction
Procurements for many related items are commonplace. Dynamic auctions have many advantages in such environments. We consider both the purchase of many related items and the purchase of many divisible goods, such as energy products or environmental allowances, or other procurement contracts. In such auctions, the bids specify quantities of each of the items: the megawatt-hours of electricity or the tons of emissions. Often, related goods are – or could be – auctioned at the same time. In electricity markets, products with several durations or locations may be auctioned together. In environmental auctions, emission reductions for each of several different pollutants or time periods may be bought at the same time. This chapter explores how procurement auctions for many divisible or indivisible goods should be conducted. Of course, the answer depends on the objective of the buyer and the bidding environment. Here we focus on a few of the important issues of auction design in a setting where the buyer cares about some combination of efficiency (procuring the goods from the lowest-cost suppliers) and minimization of the payment for purchasing the goods. Our purpose is to motivate a sensible design in a realistic environment, rather than to prove the optimality of a particular design, which would require more restrictive assumptions than we care to make.
Deception and Mutual Trust: A Reply to Strudler1
- J. Gregory Dees, Peter C. Cramton
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- Journal:
- Business Ethics Quarterly / Volume 5 / Issue 4 / October 1995
- Published online by Cambridge University Press:
- 23 January 2015, pp. 823-832
- Print publication:
- October 1995
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Alan Strudler has written a stimulating and provocative article about deception in negotiation. He presents his views, in part, in contrast with our earlier work on the Mutual Trust Perspective. We believe that Strudler is wrong in his account of the ethics of deception in negotiation and in his quick dismissal of the Mutual Trust Perspective. Though his mistakes may be informative, his views are potentially harmful to business practice. In this paper, we present arguments against Strudler’s position and attempt to salvage the Mutual-Trust Perspective from his attack. Strudler’s work reaffirms the need for a more pragmatic approach to business ethics. We close the paper with a renewed call for more constructive and practical approaches to business ethics research.
Promoting Honesty in Negotiation: An Exercise in Practical Ethics*
- Peter C. Cramton, J. Gregory Dees
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- Journal:
- Business Ethics Quarterly / Volume 3 / Issue 4 / October 1993
- Published online by Cambridge University Press:
- 23 January 2015, pp. 359-394
- Print publication:
- October 1993
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In a competitive and morally imperfect world, business people are often faced with serious ethical challenges. Harboring suspicions about the ethics of others, many feel justified in engaging in less-than-ideal conduct to protect their own interests. The most sophisticated moral arguments are unlikely to counteract this behavior. We believe that this morally defensive behavior is responsible, in large part, for much undesirable deception in negotiation. Drawing on recent work in the literature of negotiations, we present some practical guidance on how negotiators might build trust, establish common interests, and secure credibility for their statements, thereby promoting honesty. We also point out the types of social and institutional arrangements, many of which have become commonplace, that work to promote credibility, trust, and honesty in business dealings. Our approach is offered not only as a specific response to the problem of deception in negotiation, but as one model of how research in business ethics might offer constructive advice to practitioners.
…there is such a gap between how one lives and how one ought to live that anyone who abandons what is done for what ought to be done learns his ruin rather than his preservation …
- —Niccolo Machiavelli
We must make the world honest before we can honestly say to our children that honesty is the best policy.
- —George Bernard Shaw
Shrewd Bargaining on the Moral Frontier: Toward a Theory of Morality In Practice*
- J. Gregory Dees, Peter C. Cramton
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- Journal:
- Business Ethics Quarterly / Volume 1 / Issue 2 / April 1991
- Published online by Cambridge University Press:
- 23 January 2015, pp. 135-167
- Print publication:
- April 1991
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From a traditional moral point of view, business practitioners often seem overly concerned about the behavior of their peers in deciding how they ought to act. We propose to account for this concern by introducing a mutual trust perspective, where moral obligations are grounded in a sense of trust that others will abide by the same rules. When grounds for trust are absent, the obligation is weakened. We illustrate this perspective by examining the widespread ambivalence with regard to deception about one's settlement preferences in negotiation. On an abstract level, such deception generally seems undesirable, though in many individual cases it is condoned, even admired as shrewd bargaining. Because of the difficulty in verifying someone's settlement preferences, it is hard to establish a basis for trusting the revelations of the other party, especially in competitive negotiations with relative strangers.
Brer Rabbit had got himself caught by Brer Fox and was well on his way to becoming evening dinner. Brer Rabbit was in a great deal of deep trouble.
There didn’t seem much he could do about this one, but he didn’t seem concerned at all at being the Fox’s dinner. He just said, “Brer Fox I don’t mind if you eat me. But, oh, whatever you do don’t throw me in that briar patch.”
Now Brer Fox was surely looking forward to eating his old enemy, but he was mighty curious about Brer Rabbit’s sweating and crying about being thrown into the briar patch.
And the more he questioned it the more Brer Rabbit wailed about how much he hated and feared that briar patch.
Pretty soon it did seem that Brer Rabbit would rather be eaten than be set among those briars. So Brer Fox threw Brer Rabbit into the heart of the briar patch. Brer Rabbit gleefully scampered away.
From the tales of Brer Rabbit
Chapter 8 - Sequential bargaining mechanisms
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- By Peter C. Cramton, Yale University
- Edited by Alvin E. Roth, University of Pittsburgh
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- Book:
- Game-Theoretic Models of Bargaining
- Published online:
- 23 September 2009
- Print publication:
- 29 November 1985, pp 149-180
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Summary
Introduction
A fundamental problem in economics is determining how agreements are reached in situations where the parties have some market power. Of particular interest are questions of efficiency and distribution:
How efficient is the agreement?
How can efficiency be improved?
How are the gains from agreement divided among the parties?
Here, I explore these questions in the context of bilateral monopoly, in which a buyer and a seller are bargaining over the price of an object.
Two features of my analysis, which are important in any bargaining setting, are information and impatience. The bargainers typically have private information about their preferences and will suffer some delay costs if agreement is postponed. Information asymmetries between bargainers will often lead to inefficiencies: The bargainers will be forced to delay agreement in order to communicate their preferences. Impatience will tend to encourage an early agreement and will make the parties' communication meaningful. Bargainers with high delay costs will accept inferior terms of trade in order to conclude agreement early, whereas patient bargainers will choose to wait for more appealing terms of trade.
Some authors have examined the bargaining problem in a static context, focusing solely on the role of incomplete information and ignoring the sequential aspects of bargaining. Myerson and Satterthwaite (1983) analyze bargaining as a direct revelation game.