The Favored but Flawed Simultaneous Multiple-Round Auction

Nicolas C. Bedard (), Jacob Goeree, Philippos Louis and Jingjing Zhang
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Nicolas C. Bedard: Wilfrid Laurier University, Ontario, Canada

No 2020/03, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: We compare the first-price sealed-bid (FPSB) auction and the simultaneous multiple- round auction (SMRA) in an environment based on the planned sale of 900 MHz spectrum in Australia. Three bidders compete for five indivisible items. Bidders are permitted to obtain at most three items and need to obtain at least two to achieve profitable scale, i.e. items are complements. Value complementarities, which are a common feature of spectrum auctions, exacerbate the �fitting problem� and undermine the usual logic for superior price discovery in the SMRA. With substitutes, bidders reduce demands as prices rise and a tatonnement-like dynamic produces market-clearing prices. With complements, however, all that bidders may be interested in at higher prices are larger packages. In addition, the SMRA assigns provisional winners each round, which exposes bidders to the risk of losses when they win only a subset of their desired package.

We find that the FPSB outperforms the SMRA across a range of bidding environments: in terms of efficiency, revenue, and protecting bidders from losses due to the exposure problem. Moreover, the FPSB exhibits superior price discovery in that it almost always results in competitive (�core�) prices unlike the SMRA, which frequently produces prices that are too low because of demand-reduction or too high because of the exposure problem.

We demonstrate the robustness of our findings by considering two-stage variants of the FPSB and SMRA as well as environments in which bidders know their own values but not the distributions from which values are drawn.

Keywords: Spectrum auctions; laboratory experiments; price discovery; exposure problem; market design (search for similar items in EconPapers)
JEL-codes: C78 C92 D47 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2020-02-01
New Economics Papers: this item is included in nep-des and nep-exp
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