Economics 283 Theory and Practice of Auction Market Design Paul Milgrom Winter 2012 MW, 1:15-­‐3:05pm. Meyer 143. This course explores auction market design from the perspective of developing real applications. This area of economic research is related to matching market design and draws on traditional studies of incentive-­‐compatible mechanisms as well as market power and collusion, but also includes less well research decisions such as ones about how to structure the product for sale, how are online reputation systems to be maintained, the various trade-­‐offs among simplicity, transparency, incentive-­‐compatibility, efficiency, revenues. Another important class of questions relate to market timing, such as when auctions should be conducted, whether trading on organized exchanges should be continuous or periodic, and whether there should be limits on high-­‐frequency trading in securities markets. The “practice” part of the course title is implemented in three ways. First, we will invite economists to lead sessions about current challenges they face in their work on online markets at Yahoo, Facebook, eBay as well as Mannheim auto auctions and perhaps others. Second, we hope to get a report from the Stanford team currently working on the problems associated with the US “incentive auctions,” in which the FCC will pay to acquire certain spectrum rights from television broadcasters (providing them an “incentive” to sell) and reorganize those for new uses, primarily wireless broadband data communications (4G). Third, we will have readings focusing on issues arising in certain other markets. The theory component will be based roughly 50-­‐50 on newer papers and background readings for the applied sessions. Assignments: Students’ will be expected to do two things: to make a classroom presentation of one of the assigned papers on or after January 30 and to begin a research project in an area of potential use to a designer of some market. The research will be reported in two papers: a short, 5-­‐page paper due on February 3 either exploring a particular designed market or a presenting a research proposal and a longer (10-­‐20 page) paper, due on March 2, building on and incorporating the first paper, and giving a status report on the student’s research. Depending on enrollment, the final 1-­‐2 weeks may be devoted to in-­‐class discussions of these papers. In addition, grades may be based in part on classroom attendance and participation. The tentative class schedule is shown below. Check the Coursework website periodically for updates and to find copies of or links to the assigned readings. 1 Jan 9 Securities and Exchange Commission (2010), “Concept Release on Equity Market Structure.” [or… Chairwoman Mary Schapiro’s “Strengthening Our Equity Market Structure.”] Bidwell, Miles (2005), “Reliability Options: A Market-­‐Oriented Approach to Long-­‐Term Adequacy,” The Electricity Journal, 8(5):11-­‐25. Jan 11 Guest speaker: John Hegeman. “Market Design at Facebook” Please prepare by reading the following: Athey, Susan and Denis Nekipelov (2010), “A Structural Model of Sponsored Search Advertising Auctions.” Beck, Marissa and Paul Milgrom (2011), “Auctions, Adverse Selection, and Internet Display Advertising.” Working paper. http://www.milgrom.net/downloads/AdverseSelectionInternetDisplay.pdf Jan 16 Martin Luther King Holiday Jan 18 Kelso, Alexander, and Vincent Crawford (1982), “Job Matching, Coalition Formation and Gross Substitutes,” Econometrica 50(6): 1483-­‐1504. http://www.jstor.org/stable/1913392 Milgrom, Paul (2009). "Assignment Messages and Exchanges." AEJ Micro 1(2): 95-­‐113. Jan 23 Guest speaker: Preston McAfee. “The Right Media Exchange.” Please prepare by reading the following business publications: “Ad Exchanges: Bringing Sanity to Display,” Montes et al. “Getting Real: Ad Exchanges, RTB and the Future of Online Advertising” Jan 25 Guest speaker: Steve Tadelis (eBay and Mannheim auto auctions) Please prepare by reading the first paper below and one of the next two: Tadelis, Steven and Florian Zettelmeyer (2011), "Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment." Dellarocas, Chrysanthos (2003), “The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms,” Management Science 49(10): 1407-­‐1424. (Remark: This is a very highly cited but non-­‐technical article.) Dellarocas, Chrysanthos (2000), "Immunizing Online Reputation Reporting Systems Against Unfair Ratings and Discriminatory Behavior." Proceedings of the Second ACM Conference on electronic Commerce (aka EC ’00). October 17-­‐20, 2000, Minneapolis, Minnesota. (A well cited paper with some attempt to model the issues.) Jan 30 Ausubel, Lawrence (2006). “An Efficient Dynamic Auction for Heterogeneous Commodities.” American Economic Review 96(3): 602-­‐629. http://www.jstor.org/stable/30034063 Dobzinski, Shahar, Ron Lavi and Noam Nisan (2010), “Multi-­‐Unit Auctions with Budget Limits.” 2 Feb 1 Feb 6 Bernheim, B. Douglas and Michael Whinston (1986). “Menu Auctions, Resource Allocation and Economic Influence.” Quarterly Journal of Economics 101: 1-­‐31. http://www.jstor.org/stable/1884639 [Blake Barton] Ausubel, Lawrence and Paul Milgrom (2002). “Ascending Auctions with Package Bidding.” Frontiers of Theoretical Economics 1(1): Article 1. http://www.bepress.com/bejte/frontiers/vol1/iss1/art1 [Seungwon (Eugene) Jeong] Rassenti, Steve, Robert Bulfin and Vernon Smith (1982). “A combinatorial Auction Mechanism for Airport Time Slot Allocation.” Bell Journal of Economics XIII: 402-­‐417. http://www.jstor.org/stable/3003463 . Brewer, Paul and Charles Plott (1996). "A Binary Conflict Ascending Price (BICAP) Mechanism for the Decentralized Allocation of the Right to Use Railroad Tracks." International Journal of Industrial Organization 14: 857-­‐886. [Josh Mollner] Feb 8 Day, Robert and Paul Milgrom (2010), “Optimal Incentives in Core-­‐Selecting Auctions.” Forthcoming in the Handbook of Market Design, Oxford University Press. http://www.milgrom.net/downloads/Incentives%20in%20Core-­‐
Selecting%20Auctions%2008-­‐25-­‐2010.pdf [Johanna He]
Erdil, Aytek and Paul Klemperer (2010). “A New Payment Rule for Core-­‐Selecting Package Auctions,” Journal of the European Economic Association. Feb 13 Feb 15 Porter, David, Stephen Rassenti, Anil Roopnarine and Vernon Smith (2003). “Combinatorial Auction Design.” Proceedings of the National Academy of Sciences 100: 11153-­‐11157. http://www.jstor.org/stable/3147446 Kagel, John, Yuanchuan Lien and Paul Milgrom (2010). "Ascending Prices and Package Bidding: A Theoretical and Experimental Analysis." American Economic Journal: Microeconomics 2(3): 160-­‐185. http://www.milgrom.net/downloads/AscendingPrices02142010.pdf [Sergey Vorontsov] Guests: Jon Levin and Ilya Segal: “Incentive Auctions” to Reassign Radio Spectrum. Readings TBD. Feb 20 Beck, Marissa (2011)… TBD Jehiel, Philippe (2011). “Manipulative Auction Design,” Theoretical Economics. [Evan
Connell Storms]
Feb 22 Garratt, Rod, Thomas Troger and Charles Zheng (2009). "Collusion via Resale," Econometrica, v77, n4, 1095-­‐1136. http://www.jstor.org/stable/40263855 [Ning Yu] Feb 27 Zheng, Charles (2011). "Jump Bidding and Overconcentration in Decentralized Simultaneous Ascending Auctions." Forthcoming Games and Economic Behavior. [Inbal
Talgam Cohen] Feb 29 Jehiel, Philippe and Laurent Lamy (2011), “Absolute Auctions and Secret Reserve Prices: Why are They Used?” (Working paper) [Sandro Ambuehl] Mar 5 Burguet, Roberto, Juan-­‐Jose Ganuza and Esther Hauk, “Limited Liability and Mechanism Design in Procurment,” Working paper. Mar 7 Presentations of student research Mar 12 Presentations of student research 3 Mar 14 Presentations of student research 4