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Endogenous reference price auctions for a diverse set of commodities: an experimental analysis
Olivier Armantier1, Charles A Holt2
1Federal Reserve Bank of New York, New York, NY USA.
Experimental Economics
|June 26, 2023
Summary
A new endogenous reference price auction mechanism improves seller profit, efficiency, and total surplus in multi-object auctions with budget constraints and noisy value estimates.
Area of Science:
- Economics
- Game Theory
- Mechanism Design
Background:
- Auctions with budget-constrained auctioneers face challenges with noisy value estimates.
- Multi-object, multi-unit auctions require robust allocation mechanisms.
Purpose of the Study:
- To propose and evaluate a novel auction mechanism for budget-constrained auctioneers with noisy value estimates.
- To improve seller profit, allocative efficiency, and total surplus.
Main Methods:
- Introduction of the endogenous reference price auction (ERPA).
- Bids are normalized using endogenously set reference prices.
- Experimental evaluation of the ERPA mechanism.
Main Results:
- The ERPA mechanism effectively mitigates inaccuracies from noisy value estimates.
- Significant improvements observed in seller's profit.
- Enhanced allocative efficiency and total surplus demonstrated.
Conclusions:
- The endogenous reference price auction is a viable mechanism for complex auction environments.
- The ERPA offers practical implications for large-scale auctions.
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