Economics 2056b, Spring 2010

Topics in Market Design

Susan Athey

 

Class Time:  1-2:30pm Tuesday/Thursday                             

Class Venue:   M15

 

Course Description

Studies topics in market design, focusing on auctions, auction-based marketplaces and platform markets.  Covers methods and results from theory, empirical work, econometrics and experiments, highlighting practical issues in real-world design.

 

Grading:

There will be an optional problem set and a research paper of approximately 15 pages.  At least one-third of the paper should discuss a new and open research problem in market design and a proposal for attacking it.  Up to two-thirds of the paper can be a survey of existing literature.  A two-page summary of the research paper will be due about 2/3 of the way through the course, and the final paper will be due on the last day of class.  Students with exams are encouraged to complete the paper sooner.

 

Tentative class schedule:

 

Weeks 1-2: Theory of Single Unit Auctions

Week 3: Identification and Estimation of Auction Models

Week 4: Common Value Auctions-Applications

Week 5: Entry and Dynamics

Week 6: Scoring Auctions

Week 7: Procurement, Corruption and Collusion

Week 8: Theory of Multi-Unit Auctions 

Week 9: Estimation of Multi-Unit Auctions 

Week 10: Auction Platforms 

Week 11: Trust and Reputation 

Week 12: Online Advertising

Week 13: Spillover Week/TBA

 


Reading List

 

I.  Theory of Single Unit Auctions

 

McAfee, P. and J. McMillan, “Auctions and Bidding,” Journal of Economic Literature, June 1987, pp. 699-738.

Milgrom, P., “Auctions and Bidding: A Primer,” Journal of Economic Perspectives, Summer 1989, pp 3-22.

(*) Milgrom, P. and R. Weber, “A Theory of Auctions and Competitive Bidding,” Econometrica, 50 (5), September 1982, 1089-1122.

 

II. and III. Econometric Identification and Estimation of Single Unit Auctions

 

(*) Athey, S. and P. Haile, “Empirical Models of Auctions,” http://kuznets.harvard.edu/~athey/EmpiricalModels.pdf

Athey, S. and P. Haile, “Nonparametric Approaches to auctions,” Handbook of Econometrics, Volume 6, Forthcoming. http://kuznets.harvard.edu/~athey/athey-haile-handbook.pdf

Athey, S. and P. Haile, “Identification in Standard Auction Models,” Econometrica.  70 (6), November 2002, pp. 2107-2140. 

(*) Guerre, E., I. Perrigne, and Q. Vuong, “Optimal Nonparametric Estimation of First-Price Auctions,” Econometrica 68 (3), May 2000, 525-74.

(*) Haile, P. and E. Tamer, “Inference with an Incomplete Model of English Auctions,” Journal of Political Economy, 111 (1), February 2003.  http://www.journals.uchicago.edu/JPE/journal/issues/v111n1/111102/111102.web.pdf

Laffont, J.-J., H. Ossard, and Q. Vuong, “Econometrics of First Price Auctions,” Econometrica, July 1995, pp. 953-80.

Kagel, J. “Auctions: A Survey of Experimental Research,” in J. Kagel and A. Roth, eds, The Handbook of Experimental Economics.

Krasnokutskaya, E. (2004) “Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity”, working paper, U. Penn

Li, T., I. Perrigne and Q. Vuong, “Conditionally Independent Private Information in OCS Wildcat Auctions,” Journal of Econometrics 98 (1), September 2000, 129-61.

Li, T., I. Perrigne, and Q. Vuong, ““Structural Estimation of the Affiliated Private Value Auction Model,” Rand Journal of Economics, Vol. 33, No. 2, 171-193, Summer 2002.

Li, T. and Q. Vuong, “Nonparametric Estimation of the Measurement Error Model Using Multiple Indicators”, Journal of Multivariate Analysis 65: 139-165

 

IV.  Empirical Models of Common Value Auctions

 

Haile, P., Hong H, and M. Shum (2003), “Nonparametric Tests for Common

  Values at First-Price Sealed-Bid Auctions”, NBER Working Paper 10105

(*) Hendricks, K. and R. Porter, “An Empirical Study of an Auction with Asymmetric Information,” American Economic Review, December 1988, pp. 865-83.

(*) Hendricks, K., J. Pinkse, and R. Porter, “Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions,” Review of Economic Studies 70 (1), 2003. See also working Paper 0008, August 1999, http://www.csio.econ.northwestern.edu. 

Hong, H and M. Shum (2002), “Increasing Competition and the Winner’s Curse: Evidence from Procurement”, Review of Economic Studies, 69:871-898

Hong, H. and M. Shum (2003), “Econometric Models of Ascending Auctions”, Journal of Econometrics 112:327-258

 

V.  Entry and Dynamics

 

Athey, S., J. Levin and E. Seira, “Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions,” Mimeo, 2004.  http://kuznets.harvard.edu/~athey/comparingformats0904.pdf

(*) Bajari, P. and A. Hortacsu, “Winner’s Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from Ebay Auctions,” Forthcoming, RAND Journal of Economics.

Haile, P., “Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales,” American Economic Review, 92 (3), June 2001, 399-427.

Levin, D. and J. Smith (1994), “Equilibrium in Auctions with Entry”, American Economic Review, 84: 585-599

Li, T., “Econometrics of First-Price Auctions with Binding Reservation Prices,” working paper, University of Iowa.

(*) Pesendorfer, M. and M. Jofre-Benet, “Bidding Behavior in a Repeated Procurement Auction,” Mimeo, Yale, 2000.  http://aida.econ.yale.edu/~martinpe/highway7-8-00b1.pdf

 

VI.             Theory of Multi-Unit Auctions and Applications

 

Ausubel, Lawrence M., Peter Cramton, and Paul Milgrom. 2006. "The Clock-Proxy Auction: A Practical Combinatorial Auction Design," in Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), Combinatorial Auctions, Chapter 5, MIT Press, 2006.

Ausubel, Lawrence M. and Peter Cramton. 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, 2, 480-493.

Ausubel, Lawrence M. and Peter Cramton. 2002. "Demand Reduction and Inefficiency in Multi-Unit Auctions." Working Paper, University of Maryland.

Ausubel, Lawrence M. and Paul Milgrom. 2002. "Ascending Auctions with Package Bidding." Frontiers of Theoretical Economics 1(1), Article 1.

Ausubel, Lawrence M. and Peter Cramton. 1999. "The Optimality of Being Efficient." Working Paper, University of Maryland.

(*) Cantillon, E. and M. Pesendorfer, “Combination Bidding in Multi-Unit Auctions,” Mimeo, Harvard Business School, 2003.  http://www.people.hbs.edu/ecantillon/Combi-March03.pdf

Cramton, Peter. 1998. "Ascending Auctions." European Economic Review, 42, 745-756.

VII.  Econometrics of Multi-Unit Auctions and Applications

 

Bajari , P. and J. Fox (2007), “Measuring the Efficiency of an FCC Spectrum Auction”, working paper, University of Chicago

Cantillon, Estelle and Martin Pesendorfer. 2007.  "Combination Bidding in Multi-Unit Auctions." Mimeo, Centre for Economic Policy Research, LSE.

Cantillon Estelle and Martin Pesendorfer. 2004. "Auctioning Bus Routes: The London Experience," later published as Chapter 22 in Combinatorial Auctions, Cramton, Shoham and Steinberg (eds), MIT Press. 2006.

(*) Hortacsu, A. (2002), “Mechanism Choice and Strategic Bidding in Divisible Goods Auctions: An Empirical Analysis of the Turkish Treasury Auction Market”, working paper, University of Chicago

Kastl, J. (2007), “Discrete Bids and Empirical Inference in Divisible Goods Auctions”, working paper, Stanford

 

VIII.  Scoring Auctions

 

(*) Athey, S. and J. Levin, “Information and Competition in U.S. Forest Service Timber Auctions,” Journal of Political Economy, 109 (2), April 2001: 375-417.  http://www.stanford.edu/~athey/skew1000.pdf

Agarwal, N, , Athey, S. and D. Yang, “Skewed Bidding in Per Per Action Auctions for Online Advertising”, working paper, Harvard http://kuznets.harvard.edu/~athey/cpa_draft_aea.pdf

(*) Asker. J. and E. Cantillon (2008),, “Properties of Scoring Auctions” forthcoming in  Rand Journal of Economics

Bajari, P, Houghton S, and S. Tadelis, (2007)  Bidding for Incomplete Contracts”, working paper, U. Minnesota

(*) Bajari, P. and Lewis, G.  (2008) “Procurement Contracts with Time Incentives: Theory and Evidence”, working paper, Harvard

Kagel, J., R. Harstad and D. Levin, “Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study, Econometrica, 55 (1987), pp. 1275-1304.

Porter, R., “The Role of Information in U.S. Offshore Oil and Gas Lease Auctions,” Econometrica, 63 (January 1995), pp. 1-27.

 

IX.   Corruption and Collusion

 

Theory

Athey, S., K. Bagwell, and C. Sanchirico, “Collusion and Price Rigidity,” (2002)  forthcoming, Review of Economic Studies.  http://www.stanford.edu/~athey/

Athey, S. and K. Bagwell, “Optimal Collusion with Private Information,” RAND Journal of Economics, Autumn 2001.

Athey, S. and K. Bagwell, “Collusion with Persistent Cost Shocks,” Econometrica, Vol. 76, No. 3 (May, 2008), 493–540. http://kuznets.harvard.edu/~athey/CollusionPersistent.pdf

Graham, D. and Marshall, R. (1987), “Collusive Bidder Behavior at Single-Object Second-Price and English Auctions”, Journal of Political Economy, 95, 1217-39

(*) McAfee, P. and J. McMillan (1992), “Bidding Rings”, American Economic Review, 82: 579-599

Skryzpacz, A. and H. Hopenhayn (2004), “Tacit Collusion in Repeated Auctions”, Journal of Economic Theory, 11: 153-69

 

Empirics

(*) Asker, J. “A Study of the Internal Organization of a Bidding Cartel”, working paper, NYU Stern

Cramton, Peter and Jesse Schwartz. 2003. "Collusive Bidding in the FCC Spectrum Auctions." Contributions to Economic Analysis & Policy, 1(1). [presentation]

Porter, R. and D. Zona, “Detection of Bid Rigging in Procurement Auctions,” Journal of Political Economy, June 1993, pp. 518-38.

(*) Tran, A. (2008), “Can Procurement Auctions Reduce Corruption? Evidence form the Internal Records of a Bribe-Paying Firm”, working paper, Harvard

 

X.  Auction-Based Platforms

 

      X.A Online Advertising Markets

 

(*) Athey, Susan and Glenn Ellison. 2007. "Position Auctions with Consumer Search."

Borgers, Tilman, Ingemar Cox, Martin Pesendorfer, and Vaclav Petricek. 2006. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence." Working Paper, LSE.

Edelman, Benjamin, Ostrovsky, Michael, and Schwartz, Michael. 2007. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords." American Economic Review, 97(1), 242-259.

Varian, Hal R. 2006. "Position Auctions." Mimeo, UC Berkeley.   

 

X.B Online Auctions for Goods and Services

 

      (*) Budish, E. (2007), “Sequencing and Information Revelation in Auctions for

      Imperfect Substitutes: Understanding eBay’s Market Design”

(*) Lewis, G. (2008), “Asymmetric Information, Adverse Selection and Seller   

      Disclosure: The Case of eBay Motors”, working paper, Harvard

Hortacsu, Ali, Asis Martinez-Jerez and Jason Douglas. (2006). "The Geography of Trade on eBay and MercadoLibre." NET Institute Working Paper #06-09.

Roth, Alvin E. and Axel Ockenfels. (2002). "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet." American Economic Review, 92(4), 1093-1103. 

Song, U. (2004), “Nonparametric Estimation of an eBay Auction Model with an Unknown Number of Bidders”, working paper, University of British Columbia

 

XI. Trust and Reputation Systems

 (*) Josang, A. Ismail, R. and C. Boyd (2007), “A Survey of Trust and Reputation Systems for Online Service Provision”, Decision Support Systems, 43(2), 2007, 618-644

Karlan, D., Mobius, M., Rosenblat, T and A. Szeidl (2008), “Trust and Social        Collateral”, forthcoming in QJE

Kreps,  D, and R. Wilson (1982), “Reputation and Imperfect Information”, Journal of Economic Theory, 27(2): 253-279

(*) Resnick, P. and R. Zeckhauser. (2002) “Trust Among Strangers in Internet    Transactions: An Empirical Analysis of eBay’s Reputation System”, in M.R. Baye, editor, The Economics of the Internet and E-Commerce, volume 11 of Advances in Applied Microeconomics, Elsevier Science

Appendix: Specific Applications (can have overlap with above)

I.B.1 Timber

The Canada-United States Softwood Lumber Trade Discussions. 2001. Province of British Columbia.

Athey, Susan, Jonathan Levin, and Enrique Seira. 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions." Working Paper.

Athey, Susan., Peter Cramton, and Allan Ingraham. 2002. "Auction-Based Timber Pricing and Complementary Market Reforms in British Columbia." Market Design, Inc. and Criterion Auctions.

Athey, Susan and Jonathan Levin. 2001. "Information and Competition in U.S. Forest Service Timber Auctions." The Journal of Political Economy. 109(2), 375-417.

I.B.2 Spectrum

Ausubel, Lawrence M., Peter Cramton, R. Preston McAfee, and John McMillan. 1997. "Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions.Journal of Economics and Management Strategy, 6(3), 497-527.

Borgers, Tilman and Christian Dustmann. 2002. "Rationalizing the UMTS Spectrum Bids: The Case of the UK Auction." Working Paper, University College London.

Cramton, Peter and Jesse Schwartz. 2003. "Collusive Bidding in the FCC Spectrum Auctions." Contributions to Economic Analysis & Policy, 1(1). [presentation]

*Cramton, Peter. 2002. "Spectrum Auctions," in Martin Cave, Sumit Majumdar, and Ingo Vogelsang, eds., Handbook of Telecommunications Economics, Amsterdam: Elsevier Science B.V., Chapter 14, 605-639.

Cramton, Peter. 2000. "Lessons from the United States Spectrum Auctions." Prepared Testimony of Peter Cramton before the United States Senate Budget Committee.

Cramton, Peter, Evan Kwerel, and John Williams. 1998. "Efficient Relocation of Spectrum Incumbents." Journal of Law and Economics, 41, 647-675.

Cramton, Peter. 1997. "The FCC Spectrum Auctions: An Early Assessment." Journal of Economics and Management Strategy, 6(3), 431-495.

Jehiel, Philippe and Benny Moldovanu. 2001. "The European UMTS/IMT-2000 License Auctions." Working Paper, University of Mannheim.                                                                                                              

Milgrom, Paul.1996. "Procuring Universal Service: Putting Auction Theory to Work." Lecture at the Royal Swedish Academy of Sciences.

 I.B.3 Airport Landing Slots

Ausubel, Lawrence M. and Peter Cramton. 2005. "Mock Auction of Arrival/Departure Slots at LaGuardia Airport." University of Maryland.

I.B.4 Electricity

Borenstein, Severin, James Bushnell, and Frank Wolak. 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market." American Economic Review, 92(5) 1376-1405.

Cramton, Peter and Steven Stoft. 2006. "The Convergence of Market Designs for Adequate Generating Capacity." Working Paper, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.

Kahn, Alfred E., Peter Cramton, Robert H. Porter, and Richard D. Tabors. 2001. "Pricing in the California Power Exchange Electricity Market: Should California Switch from Uniform Pricing to Pay-as-Bid Pricing?" Blue Ribbon Panel Report, California Power Exchange.

Wilson, Robert. 1999.  "Market Architecture." Stanford University.

Wolak, Frank A. 2001. "What Went Wrong in California's Restructured Electricity Market?" Presentation at the AEI.

Wolak, F., “Identification and Estimation of Cost Functions Using Observed Bid Data: An Application to Electricity Markets,” in Advances in Economics and Econometrics, Theory and Applications, Eighth World Congress, Volume II. Cambridge University Press, 2003.  http://www.cepr.org/meets/wkcn/6/696/papers/wolak1.pdf

 

I.B.5 Pollution Permits

Cramton, Peter and Suzi Kerr. 2002. "Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather.Energy Policy, 30, 333-345.

 Ellerman, A.Denny, Richard Schmalensee, Paul L. Joskow, Juan Pablo Montero, and Elizabeth M. Brady. DATE? "Emissions Trading Under the U.S.Acid Rain Program: Evaluation of Compliance Costs and Allowance Market Performance." Center for Energy and Environmental Policy Research, Massachusetts Institute of Technology.

 I.B.6 Treasury Bills

Bikhchandani, Sushil. and Chi-Fu Huang. 1993.  "The Economics of Treasury Securities Markets." Journal of Economic Perspectives, 7(3), 117-134.

Malvey, Paul F., Christina M. Archibald, and Sean T. Flynn. 1998. "Uniform-Price Auctions: Evaluation of the Treasury Experience."

Malvey, Paul F., Christina M. Archibald. 1998. "Uniform-Price Auctions: Update of the Treasury Experience." Office of Market Finance, U.S. Treasury.

I.B.7 Bus Routes and Combinatorial Auctions

I.C.1 eBay

Ariely, Dan, Axel Ockenfels, and Alvin E. Roth. 2005. "An Experimental Analysis of Ending Rules in Internet Auctions." RAND Journal of Economics, 36(4), 891-908.

Bajari, Patrick and Ali Hortacsu. 2004. "Economic Insights from Internet Auctions." Journal of Economic Literature, 42, 457-486.

Bajari, Patrick and Ali Hortacsu. 2002. "Cyberspace Auctions and Pricing Issues: A Survey of Empirical Findings." Published in The New Economy Handbook. Derek C. Jones, ed. 2003.

Bajari, Patrick and Ali Hortacsu. 2003. "The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions." RAND Journal of Economics, 34(2), 329-355.

Hortacsu, Ali, Asis Martinez-Jerez and Jason Douglas. 2006. "The Geography of Trade on eBay and MercadoLibre." NET Institute Working Paper #06-09.

Roth, Alvin E. and Axel Ockenfels. 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet." American Economic Review, 92(4), 1093-1103.  (See Hal Varian's NY Times column on this work here).

I.C.2 Online Auctions: Auctions for Sponsored Links

Athey, Susan and Glenn Ellison. 2007. "Position Auctions with Consumer Search."

Borgers, Tilman, Ingemar Cox, Martin Pesendorfer, and Vaclav Petricek. 2006. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence." Working Paper, LSE.

Edelman, Benjamin, Ostrovsky, Michael, and Schwartz, Michael. 2007. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords." American Economic Review, 97(1), 242-259.

Varian, Hal R. 2006. "Position Auctions." Mimeo, UC Berkeley.   

I.C.3 Online Auctions: Auctions for Display Advertising

Levin, Jonathan and Paul Milgrom, 2010, “Online Advertising: Heterogeneity and Conflation in Market Design.”  American Economic Review, forthcoming.

Ghosh, Arpita, Preston McAfee, Kishore Papineni, and Sergei Vassilvitskii, 2009, “Bidding for Representative Allocations for Display Advertising,” working paper.

Lewis, Randall and David Reiley, “Retail Advertising Works! Working Paper.  Presentation.

 

Two-Sided Markets

Ambrus, Atilla and Rosella Argenziano. 2006. "Asymmetric Networks in Two- sided Markets." Mimeo, Harvard University.

Armstrong, Mark. 2006. "Competition in Two-Sided Markets." RAND Journal of Economics, 37(3), 668-691.

Armstrong, Mark and Julian Wright. 2006. "Two-Sided Markets, Competitive Bottlenecks, and Exclusive Contracts." Economic Theory, 32(2), 353-380.

Caillaud, Bernard and Bruno Jullien. 2003. "Chicken and Egg: Competition Among Intermediation Service Providers." RAND Journal of Economics, 34(2), 309-328.

Ellison, Glen, Drew Fudenberg, and Markus Mobius. 2004. "Competing Auctions." Journal of the European Economic Association, 2(1), 30-66.

Evans, David S. 2003. "The Antitrust Economics of Multi-Sided Platform Markets." Yale Journal on Regulation, 20, 325-382.

Hagiu, Andrei. 2006. "Pricing and Commitment by Two-Sided Platforms." RAND Journal of Economics, 37(3), 720-737.

II.A Dating Markets

Fisman, Raymond, Sheena Iyengar, Emir Kamenica, and Itamar Simonson. 2006. "Gender Differences in Mate Selection: Evidence from a Speed Dating Experiment." Quarterly Journal of Economics, 121(2), 673-697.

Fisman, Raymond, Sheena S. Iyengar, Emir Kamenica, Itamar Simonson. 2005. "Searching For a Mate: Evidence From a Speed Dating Experiment." Working Paper, Columbia University.

Fisman, Raymond, Sheena Iyengar, Emir Kamenica, & Itamar Simonson. DATE? "Racial Preferences in Dating." Review of Economic Studies, 2007, forthcoming.

Hortacsu, Ali, Guenter Hitsch and Dan Ariely. 2006. "What Makes You Click? Mate Preferences and Matching Outcomes in Online Dating." MIT Sloan Research Paper #4603-06. Link to Hal Varian's NY Times column on this paper.

II.B Media Markets

Anderson, Simon and Stephen Coate. 2005. "Market Provision of Broadcasting: A Welfare Analysis." Review of Economic Studies 72(253), 947-952.

Athey, Susan and Joshua Gans, 2010.  The Impact of Targeting Technology on Advertising Markets and Media Competition.”  American Economic Review, forthcoming.

Bergemann, Dirk and Alessandro Bonatti, 2009.  Targeting in Advertising Markets:  Implications for New and Old Media.”  Working Paper, Yale University.

Anderson, Simon and Joshua S. Gans, 2009.  Platform Siphoning.”  Working Paper, University of Virginia.  Presentation.

Gentzkow, Matt and Jesse M. Shapiro, 2008, “Competition and Truth in the Market for News,” Journal of Economic Perspectives. Spring, 2008.  

Gentzkow, Matt and Jesse M. Shapiro, 2010, “What Drives Media Slant? Evidence from U.S. Daily Newspapers,” Econometrica. Forthcoming.