Essays on Speculation, Joint Bidding, and Dynamic Entry in Auctions

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Deng, Shanglyu
Ausubel, Lawrence
This dissertation consists of three essays on auction design. In Chapter 1, I provide an introduction for the following chapters. In Chapter 2, I examine speculation in procurement auctions, where speculators may have the incentive to acquire items from multiple sellers prior to the auction in order to increase their market power and reduce competition during the auction. I show that the profitability of the speculation scheme hinges on the auction format: Speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. This comparison in profitability is driven by different competition patterns in the two auction mechanisms. In terms of welfare, speculation causes private value destruction and harms efficiency. Sellers benefit from the acquisition offer made by the speculator. Therefore, speculation comes at the expense of the auctioneer. In Chapter 3, I consider a procurement setting where suppliers may be functionally complementary, meaning they need to collaborate to complete a complex project. I compare two methods for incorporating complementary firms into procurement auctions: allowing them to bid jointly or using combinatorial auctions, such as the VCG auction, to coordinate their collaboration. The joint bidding approach leads to a double marginalization problem, as the prime contractor must elicit private cost information from subcontractors, and then submit a bid on behalf of the group. Consequently, the joint bidding approach often underperforms the VCG auction in several aspects, including efficiency, procurement price, and support for small businesses. Chapter 4 presents both theoretical and empirical analyses for recurring auctions. Auctions for durable assets, such as land, house, or artwork, are commonly recurring, as the seller often holds a subsequent auction after a previous attempt fails. Theoretical results show that recurring auctions outperform single-round auctions in terms of efficiency and revenue when potential buyers face costly entry. This occurs because recurring auctions allow potential buyers with different values to enter at different times, which generates savings in entry costs and increases the overall probability of sale. Additionally, optimal reserve price sequences are derived for recurring auctions based on whether the seller aims to maximize efficiency or revenue. In the empirical analysis, the theory is applied to home foreclosure auctions in China, where foreclosed homes are auctioned up to three times in a row. The study identifies the structural parameters in a recurring auction model and compares the observed recurring auctions to counterfactual single-round auctions. The results are in line with theoretical predictions, showing a significant improvement in efficiency and revenue for recurring auctions over single-round auctions. Using the optimal reserve price sequences derived from our model can further enhance the performance of recurring auctions in practice.