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33 - Bidding Complexities in the Combinatorial Clock Auction
- from Part V - The Bidders’ Perspective
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- By Vitali Gretschko, Center for European Economic Research (ZEW), Stephan Knapek, TWS Partners, Achim Wambach, Center for European Economic Research (ZEW)
- 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 731-747
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- Chapter
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Summary
Introduction
The Combinatorial Clock Auction (CCA) is an innovative auction design that has been used in many recent auctions of spectrum for telecommunication use. The CCA is based on ideas from modern microeconomic theory and combines package bidding with dynamic price discovery in a two-stage design.
In the clock phase, bidders express their demands at increasing prices in each of the auctioned categories of spectrum lots until the indicated demand matches the available supply. In the supplementary phase, bidders can improve their bids from the clock phase and submit additional bids for other desired combinations of lots. To induce truthful bidding in the clock phase, bids in the supplementary phase are constrained by a cap that is based on the clock bids. To determine winnings and prices all bids of a particular bidder are treated as mutually exclusive package bids and the combination of packages that maximizes the value as expressed by the bids is the winning allocation. The prices are determined through (a variant of) the Vickrey (second-price) rule by calculating the opportunity cost imposed by each bidder on her competitors. In general, there exist many more additional details like reserve prices, caps, or activity rules that have to be considered when designing a CCA.
While the design is quite complex, the promise of the CCA is that bidding is simple. Regulators argue that in a CCA truthful bidding is close to optimal independent of the bidding strategy of the competitors. Regulators claim that the CCA “allows bidders to use a simple strategy” and “allows the participants to evaluate the spectrum without […] shadow bids.” If truthful bidding is indeed close to optimal independent of the competitors’ behavior, this would be useful for the participants. In this case there is no need for strategizing and bidders could simply quote on the packages that lead to largest profit in the clock phase. In particular, bidders could focus their resources on determining the correct valuations and would not need to worry about the preferences of the competitors or their potentially erratic or spiteful behavior.
13 - Managing risky bids
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- By Andreas R. Engel, Consultant at TWS Partners, Germany, Juan-José Ganuza, Associate Professor of Economics, Pompeu Fabra University, Barcelona, Spain, Esther Hauk, Associate Professor of Economics, Pompeu Fabra University, Barcelona, Spain, Achim Wambach, Professor of Economics, University of Cologne, Germany
- 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 322-344
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Summary
Introduction
Public procurement is plagued by bankruptcy. In the United States more than 80,000 contractors went bankrupt between 1990 and 1997, leaving unfinished private and public construction projects with liabilities exceeding US$ 21 billion. Bankruptcy is very costly for the buyer: the direct bankruptcy costs (e.g., administrative costs or lawyers) vary between 7.5 and 20 percent of the liquidation proceeds, and indirect costs (e.g., delays and other losses) are estimated to be even larger. Bankruptcy may arise when the payment (and therefore the winning bid) lies below the possible realized cost of the project. Why are suppliers willing to bid below the possible realized cost of the project? There are three main answers to this question: (i) the winning supplier underestimates the cost and bids too optimistically; this phenomenon is known as the ‘Winner's Curse’ and is studied in Chapter 6; (ii) the selected supplier expects to renegotiate the contract later on when it is very costly for the buyer to replace the incumbent contractor; this renegotiation generates cost overruns for the buyer and rents for the incumbent that are discounted in the bid and are discussed in Chapter 5; and (iii) aggressive bids might also be due to suppliers in a bad financial situation struggling for survival by taking a risky strategy. The possibility to file for bankruptcy implies that supplying firms have limited liability. If things go too badly, the supplier simply shuts down. Hence, the supplier's possible losses are bounded while its possible gains are not.