Elmar G. Wolfstetter

Low Price Equilibrium in Multi-Unit Auctions: The GSM Spectrum Auction in Germany

The second-generation GSM spectrum auction in Germany is probably the most clear cut example of a low price outcome in a simultaneous ascending-bid auction. The present paper gives an account of the events, describes the auction rules and market conditions, and provides a theoretical explanation of low price equilibria in simultaneous, ascending-bid auctions. In particular it is shown that the low price equilibrium that implements the efficient allocation is the unique perfect equilibrium of that game.

Corruption in procurement auctions

We review different kinds of corruption that have been observed in procurement auctions and categorize them. We discuss means to avoid corruption, by choice of preferable auction formats, or with the help of technological tools, such as secure electronic bidding systems. Auctions that involve some soft elements, such as complex bids consisting of technical and financial proposals, are particularly prone to corruption. We do not believe that it is possible to eradicate corruption altogether in such situations, but we discuss means to make it less likely.

License auctions with royalty contracts for (winners and) losers

This paper revisits the licensing of a non-drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed-fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers of the auction makes the integer constraint concerning the number of licenses irrelevant.

The Third Generation (Umts) Spectrum Auction in Germany

The third generation UMTS auction in Germany raised an enormous amount of revenue, and at the same time achieved a more competitive market structure than other UMTS auctions in Europe. The present paper explains the design of that auction, and presents a game theoretic explanation of observed events during the crucial phase of that auction, which have puzzled several observers. In addition, the paper evaluates the merit of the German UMTS auction design, relative to the English design, that was predominantly employed in Europe.

Bid shading and risk aversion in multi-unit auctions with many bidders

Abstract We extend the analysis of optimal price taking bidding in multi-unit auctions to allow for risk aversion and a continuous random stop-out price. We show that in a discriminatory auction risk averse bidders should bid less aggressively than risk neutral bidders. However, bid shading is optimal at each price, which implies, with complete certainty, inefficient trade. This is in sharp contrast to competitive auctions where truthful bidding is optimal even under risk aversion.

A Sealed-Bid Auction that Matches the English Auction

This paper analyzes a two-stage sealed-bid auction that is frequently employed in privatization, takeover, and merger and acquisition contests. This auction format yields the same expected revenue as the open ascending (English) auction, yet is less susceptible to preemptive bidding and collusion.

Licensing Process Innovations when Losers’ Messages Determine Royalty Rates

We consider a licensing mechanism for process innovations that awards a limited number of unrestricted licenses to those firms that report the highest cost reductions, combined with royalty licenses to others. Firmsʼ messages are dual signals of their cost reductions: the message of those who win an unrestricted license signals their cost reduction to rival firms, while losersʼ messages influence the royalty rate set by the innovator. We explain why a sufficiently high threshold level for awarding the unrestricted license is essential to induce truth-telling, show that the innovator generally benefits from the proposed mechanism, and derive conditions for implementability by a modified second-price auction.

Auctions and Corruption

In many auctions, the auctioneer is an agent of the seller. This delegation invites corruption. In this paper we propose a model of corruption, examine how corruption affects the auction game, how the anticipation of corruption affects bidding, and how it altogether changes the revenue ranking of typical auctions. In addition we characterize incentive schemes that may prevent corruption, and compare them to the fee schedules employed by major auction houses.

Licensing a common value innovation when signaling strength may backfire

This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming firms observe imperfect signals of the cost reduction induced by the innovation. The innovator adopts a direct revelation mechanism and awards an unrestricted license to the firm that reports the highest signal and a royalty contract to the other. Firms may signal strength to their rivals through exaggerated messages, which may however backfire, and give rise to higher royalty payments. We provide sufficient conditions for truthful implementation, and for the profitability of adding royalty contracts to what is otherwise a first-price license auction.

Efficient (re-)scheduling: An auction approach

This paper considers one-sided scheduling problems, where a schedule of service is arranged at one location, without regard to other schedules. Typically, such scheduling problems are handled on a first-come-first-serve basis, which is grossly inefficient. The present paper proposes a scheduling mechanism that is a non-standard auction, in which the allocation is ruled by evaluating combinations of bids. The proposed mechanism implements the efficient allocation in dominant strategies and is deficit-free. Since that mechanism is suitable for the scheduling problems at sea-ports, loading or unloading at sea-ports is used as an illustration.