Dynamic decision making in sequential business-to-business auctions

A structural econometric approach

Yixin Lu, Alok Gupta, Wolfgang Ketter, Eric Van Heck

Research output: Contribution to journalArticle

Abstract

We develop a dynamic structural model of competitive bidding in multiunit sequential business-to-business auctions. Our model accounts for two notable characteristics of these auctions: (i) bidders have multiple purchase opportunities for the same product, and (ii) winning bidders in each round can acquire multiple units of the same product. We apply the model to bidding data from the world's largest flower wholesale market at which trades are facilitated through fast-paced, sequential, Dutch auctions. Using a two-step estimation approach, we are able to recover the structural parameters effectively and efficiently. We then conduct policy counterfactuals to evaluate the performance of alternative design choices. The results suggest that the current auction practice still has ample room for improvement. In light of this, we propose an optimization framework that can facilitate auctioneers' decisions in making the trade-off between revenue maximization and operational efficiency.

Original languageEnglish (US)
Pages (from-to)3853-3876
Number of pages24
JournalManagement Science
Volume65
Issue number8
DOIs
StatePublished - Jan 1 2019

Fingerprint

Business to business
Auctions
Dynamic decision making
Structural econometrics
Bidding
Trade-offs
Structural parameters
Revenue maximization
Competitive bidding
Dutch auction
Dynamic structural model
Purchase
Two-step estimation
Operational efficiency

Keywords

  • Auction design
  • Dynamic discrete games
  • Sequential auction
  • Structural modeling

Cite this

Dynamic decision making in sequential business-to-business auctions : A structural econometric approach. / Lu, Yixin; Gupta, Alok; Ketter, Wolfgang; Van Heck, Eric.

In: Management Science, Vol. 65, No. 8, 01.01.2019, p. 3853-3876.

Research output: Contribution to journalArticle

Lu, Yixin ; Gupta, Alok ; Ketter, Wolfgang ; Van Heck, Eric. / Dynamic decision making in sequential business-to-business auctions : A structural econometric approach. In: Management Science. 2019 ; Vol. 65, No. 8. pp. 3853-3876.
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