Ascending Combinatorial Auctions with Risk Averse Bidders

Kemal Guler (), Martin Bichler () and Ioannis Petrakis ()
Additional contact information
Kemal Guler: Bilkent University
Martin Bichler: TU München
Ioannis Petrakis: TU München

Group Decision and Negotiation, 2016, vol. 25, issue 3, No 7, 609-639

Abstract: Abstract Ascending combinatorial auctions are being used in an increasing number of spectrum sales worldwide, as well as in other multi-item markets in procurement and logistics. Much research has focused on pricing and payment rules in such ascending auctions. However, recent game-theoretical research has shown that such auctions can even lead to inefficient perfect Bayesian equilibria with risk-neutral bidders. There is a fundamental free-rider problem without a simple solution, raising the question whether ascending combinatorial auctions can be expected to be efficient in the field. Risk aversion is arguably a significant driver of bidding behavior in high-stakes auctions. We analyze the impact of risk aversion on equilibrium bidding strategies and efficiency in a threshold problem with one global and several local bidders. Due to the underlying free-rider problem, the impact of risk-aversion on equilibrium bidding strategies of local bidders is not obvious. We characterize the necessary and sufficient conditions for the perfect Bayesian equilibria of the ascending auction mechanism to have the local bidders to drop at the reserve price. Interestingly, in spite of the free-riding opportunities of local bidders, risk-aversion reduces the scope of the non-bidding equilibrium. The results help explain the high efficiency of ascending combinatorial auctions observed in the lab.

Keywords: Combinatorial auction; Risk aversion; Bayesian–Nash equilibrium analysis (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10726-015-9454-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:grdene:v:25:y:2016:i:3:d:10.1007_s10726-015-9454-6

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10726/PS2

DOI: 10.1007/s10726-015-9454-6

Access Statistics for this article

Group Decision and Negotiation is currently edited by Gregory E. Kersten

More articles in Group Decision and Negotiation from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().