Fast Core Pricing for Rich Advertising Auctions

Standard ad auction formats do not immediately extend to settings where multiple size configurations and layouts are available to advertisers. In these settings, the sale of web advertising space increasingly resembles a combinatorial auction with complementarities, where truthful auctions such as the Vickrey–Clarke–Groves (VCG) auction can yield unacceptably low revenue. In “Fast Core Pricing for Rich Advertising Auctions,” Niazadeh, Hartline, Immorlica, Khani, and Lucier study and suggest core-selecting auctions, which boost revenue by setting payments so that no group of agents, including the auctioneer, can jointly improve their utilities by switching to a different outcome. Their main result is a combinatorial algorithm that finds an approximate bidder-optimal core point with an almost linear number of calls to the welfare-maximization oracle. This algorithm is faster than previously proposed heuristics in the literature and has theoretical guarantees. By accompanying the theoretical study with an experimental study based on Microsoft Bing Ad Auction data, the authors conclude that core pricing is implementable even for very time-sensitive practical use cases such as real-time online advertising and can yield more revenue than the VCG or generalized second price auction.

Obviousness around the clock

Li (Am Econ Rev 107(11):3257–3287, 2017) introduces a theoretical notion of obviousness of a dominant strategy, to be used as a refinement in mechanism design. This notion is supported by experimental evidence that bidding is closer to dominance in the dynamic ascending-clock auction than the static second-price auction (private values), noting that dominance is theoretically obvious in the former but not the latter. We replicate his experimental study and add three intermediate auction formats that decompose the designs’ differences to quantify the cumulative effects of (1) simply seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock, and (3) getting (theoretically irrelevant) drop-out information about other bidders. The theory predicts dominance to become obvious through (2), dynamic bidding. We find no significant behavioral effect of (2), however, while the feedback effects (1) and (3) are highly significant. We conclude that behavioral differences between second-price and ascending-clock auctions offer rather limited support for the theory of obviousness and that framing has surprisingly large potential in mechanism design.

Auction theory and its practical application

Introduction.The large-scale use of auctions today in various fields, while avoiding distortions in the behavior of economic agents is considered by scientists as one of the effective tools to improve public welfare. Research conducted by Nobel Laureates in Economics 2020 Paul Milgrom and Robert Wilson has made it possible to rethink the possibilities of reformatting auctions to ensure the maximum benefit from their holding for all subjects. P. Milgrom and R. Wilson demonstrated how the technically complex«constructions» of economics to build optimal auction designs make it possible to obtain complete material benefits for society.Prupose.To substantiate the specifics of auction theory, the formats of the latter and the contribution to their development of P. Milgrom and R. Wilson - winners of the Nobel Prize in Economics in 2020.Methods. During the preparation of the article general scientific research methods were used: analysis, synthesis, induction, deduction, as well as the method of formalization, which greatly contributed to the possibility of identifying the specifics of auction theory, their formats and substantiation of scientific achievements of Nobel Laureates in Economics P. Milgrom and R. Wilson in the development of theory and practice of auctions.Results. Research by P. Milgrom and R. Wilson, awarded the Nobel Prize «for improvements to auction theory and inventions of new auction formats»), prove that auction theory is an effective tool for regulators and governments of different countries that are interested in finding ways to most effectively use certain assets. Unlike most economic models, which usually require simplification and abstraction, the conclusions of scientists in auction theory can be applied in a specific practical area - from trade in raw materials and securities - to public procurement, tenders, subsoil and radio frequency, online advertising, etc. While previous researchers, including W. Vickrey and R. Myerson, devoted their work to private value auctions (when for each buyer the value of the object is known only to him and does not depend on the opinion of other auction participants), R. Wilson in the late 1960s, focused on the analysis of auctions with common value (when the object is of equal value to all auction participants, but each of them may have its own unique information about it). In particular, at auctions for the right to produce oil in a certain area, its value for all bidders is the same, but information on the field reserves and the specifics of the area may be different. R. Wilson also argued what should be the behavior of a rational bidder to avoid the so-called «winner’s curse» (a situation in which the winner of the object will pre- set an excessively high price, if guided solely by their own assessment of profits). Radio frequency auctions in the United States are the largest and best-known example of the practical application of the findings of R. Wilson and P. Milgrom, which made the previously inefficient and virtually free distribution of licenses a way to win for sellers and buyers and society as a whole.Discussion. Auction theory will continue to develop in the future, taking into account the new challenges posed, in particular, the need to develop tools and mechanisms for conducting virtual auctions in order to adequately adapt to digital reality. The need to develop a «road map» to address the shortcomings inherent in the existing auction formats in terms of taking into account the accelerated development of technology, increasing mobility, globalization and digitalization of the economy.

Robust Auctions for Revenue via Enhanced Competition

In “Robust Auctions for Revenue via Enhanced Competition,” T. Roughgarden, I. Talgam-Cohen, and Q. Yan revisit the classic Bulow–Klemperer result. This result compares the revenues of two well-known auction formats: the welfare-maximizing Vickrey auction and the revenue-maximizing Myerson auction. It shows that, with an extra bidder competing for the item, the Vickrey auction becomes as good as the Myerson auction in terms of revenue while maintaining independence from prior distributional information about bidders’ valuations. Unfortunately, Myerson’s toolbox for revenue-optimal auction design does not extend to combinatorial auctions with multiple heterogenous items, for which optimizing revenue remains a challenge—especially if we want auction designs that are simple and robust enough to use in practice. This paper extends the Bulow–Klemperer result to multiple heterogenous items by showing that a prior-independent, simple, welfare-maximizing auction with additional competing bidders achieves as much revenue as the ill-understood optimal auction.

Channel Auctions

Standard auction formats feature either an upper bound on the equilibrium price that descends over time (as in the Dutch auction) or a lower bound on the equilibrium price that ascends over time (as in the English auction). We show that in some settings with costly information acquisition, auctions featuring both (viz., a narrowing channel of prices) outperform the standard formats. This Channel auction preserves some of benefits of both the English (truthful revelation) and Dutch (security for necessary information acquisition) auctions. Natural applications include housing, online auction sites like eBay, recording transactions on blockchains, and spectrum rights. This paper was accepted by Joshua Gans, business strategy.

Revenue Guarantee Equivalence

We revisit the revenue comparison of standard auction formats, including first-price, second-price, and English auctions. We rank auctions according to their revenue guarantees, i.e., the greatest lower bound of revenue across all informational environments, where we hold fixed the distribution of bidders’ values. We conclude that if we restrict attention to the symmetric affiliated models of Milgrom and Weber (1982) and monotonic pure-strategy equilibria, first-price, second-price, and English auctions are revenue guarantee equivalent: they have the same revenue guarantee, which is equal to that of the first-price auction as characterized by Bergemann, Brooks, and Morris (2017). If we consider all equilibria or if we allow more general models of information, then first-price auctions have a greater revenue guarantee than all other auctions considered. (JEL D44, D83)

A Study of Bidding Behavior in Voluntary-Pay Philanthropic Auctions

The authors investigate compliance behavior and revenue implications in winner-pay and voluntary-pay auctions in charity and noncharity settings. In the voluntary-pay format, the seller asks all bidders to pay their own high bid. The authors explore motives and boundary conditions for compliance behavior based on internal and external triggers of social norms. The voluntary-pay format generates higher revenue than the winner-pay format for charity auctions, despite imperfect compliance, but it generates lower revenues in noncharity settings. To characterize bidding strategy, the authors study time to bid, auction choice, and jump bidding and find evidence that bidders in voluntary-pay auctions more commonly use jump bidding and late entry. The findings have important implications for marketing managers, augmenting the growing stream of empirical auction studies and work on corporate social responsibility. Specifically, combining an auction with a charitable cause may result in increased revenues, but managers should ensure that they are accounting for differential compliance rates between auction formats. Even if low-compliance bidders can be identified and screened out, doing so is not advantageous, because noncompliant bidders bid up prices.