Iterative Auctions
Description
The following is the description of a simple iterative auction:
- Bidding occurs in discrete time-limited rounds.
- Auctioneer sets the round price.
- Bidders bid on quantity not price.
- Bidders are price takers, auctioneer is the price-maker.
- Bidders are unable to manipulate (or "game") the auction.
- Bidders are unable to "collude".
- Bidding rules enforce bidding activity, and prevent "withholding of demand".
Advantages
- Round by round price discovery feedback information.
Bidders may initially have only a very vague conception of what the "going price" will be. So that a multi-round iterative auction which includes useful feedback to bidders provides excellent information for "price discovery".
- Dramatic insight into bidders transaction curves (demand or supply).
"true" transaction curves are revealed.
- Profit Maximization
The system automatically "cherry picks" the bidder transaction curves
- Efficient Allocation
The product goes to the bidder who value it the most.
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Efficiency in terms of simultaneously negotiating with multiple counterparties.
Multiple bidders engaged at the same time. Bidders negotiate against each other rather than serially and bilaterally with the auctioneer, as is the case generally in contracting.
- From experience, bidders share their valuations via electronic auctions more readily given feedback from other bidders, than in face-to-face scenarios.