Billions and Billions Sourced: Lessons Learned Building eMarkets

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Billions and Billions Sourced Lessons Learned
Building eMarkets

• Robert T. Monroe
• Tepper School of Business
• Carnegie Mellon University
• October 28, 2004

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Introduction

• Market Making is an art as well as a science
• This talk focuses on the art of market making
• Specifically in reverse auctions for sourcing

Economist Generals Warning This talk consists
of conjecture, opinion, and anecdotes. The rigor
you are probably used to finding in talks of this
nature is likely to be notably absent. You have
been warned.
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Market Making Process

• Needs
• Feasibility
• Contracts
• Market
• Conditions

What How Many When Where Specs Drawings T
Cs Lotting Commoditize! Auction
format Distribute Iterate
Identify Qualify Evaluate Inform Recruit Convince
Compel Iterate
Game Day Negotiate Real-Time competition
Scenarios Create Evaluate
Iterate Audits Due Diligence Select Winners
Communicate award Sign contracts
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Bidding Dynamics Typical BidGraph
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Configuring Auctions
The following parameters have proven useful in
configuring auctions

• Formats
• Single bidder input
• English
• Dutch
• Index
• Transformation
• Multiple bidder inputs
• Total Cost/Multivariate
• NPV
• Combinatorial
• Number of rounds

• Feedback
• Unique/generic bidder ID
• All bid prices
• Rank only
• Rank plus lead price
• Government rules
• Lot Opening and Closing
• Overtimes/no overtimes
• Ranks that trigger overtimes
• Contingent staggered
• Parallel

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Auction Design Heuristics

• Simplify, simplify, simplify
• Human cognition is more limiting than algorithmic
  complexity
• One factor easy, Many factors hard
• Let the bidder know what they must do to win
• Much harder with combinatorial auctions
• Confusing and/or frustrating bidders is bad
• Select auction format and parameters wisely

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Key Ideas

• Market Making is an art as well as a science
• The science of auctions is important
• but the effort prior to the auction generally
  determines its success
• Simplify, simplify, simplify

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Thanks!

• Feel free to contact me for further discussion
• Robert T. Monroe
• Tepper School of Business
• Carnegie Mellon University
• 412-268-5744
• bmonroe_at_cmu.edu