Folie 1

1
Design of Combinatorial Auctions for Allocation
and Procurement Processes Michael
Schwind JWG-University Frankfurt CEC-2005 21.7.
2005 Technical University of Munich
2

• Basics of the Combinatorial Auction
• Design of an Auction Framework
• Economic Validation of Auction Design
• Summary and Outlook
• Literature

3
Combinatorial Auction Basics

• Bidders Valuations for Bundles of Goods
• Substitutionalities ? Subadditivity
• Complementarities ? Superadditivity
• Winner Determination Problem (WDP)
• Allocation Auction ? Weighted Set Packing Problem
• Procurement Auction ? Weighted Set Covering
  Problem
• Procurement Auction
• s.t.c.

4
Combinatorial Auction Variants

• Multidimensional Auction
• Exchange of complex preference information
• Various dimensions e.g. quality, delivery time
• Multi-attributive Auction
• Impact of attributes on W2P is determined by
  valuation functions
• Multi-item Auction
• Single items of different goods are bundled in
  bids
• Multi-unit Auction
• Multiple items of a good type are bundled in bids

5
Combinatorial Auction Advantages / Problems

• Advantages
• Higher efficiency in final allocation
• Lower transaction costs
• Higher transparency
• Problems
• NP-hardness of WDP
• Exact solutions Integer programming,
  branch-and-bound
• Heuristics Simulated annealing, genetic
  algorithms
• Pricing Problem
• Linear prices / Non-linear prices (anonymous /
  personalized)
• Preference Elicitation Problem
• 2j-1 combinations of bids in worst case
• Incentive Compatibility / Stability of Mechanism
• Vickrey-Clarke-Groves (n1 NP-hard)

6
Combinatorial Auction Process Design

• Modeling of the pre and post auction phase
• Organization of the auction preparation and post
  processing phase
• E.g. publication of auction rules, transaction
  management
• Design of the main auction phase
• Major impact on the auction outcome
• Design of the allocation mechanism
• Modeling of the auction process flow control
• Timing of bidding sequence, closing, clearing
  time
• Legal, security and system stability issues
• Transaction management protocol, etc.

7

• Basics of the Combinatorial Auction
• Design of an Auction Framework
• Economic Validation of Auction Design
• Summary and Outlook
• Literature

8
Combinatorial Auction Decision Support

• Fundamental Decisions
• Price feedback
• One-shot sealed-bid VCG usable, only acceptance
• Iterative price feedback, anonymous pricing,
  usage of sealed bid proxy agents, clock auction
  
• Bid formation
• Bid valuation multi-attributive, manual /
  automated bid construction (logistics),
  preference elicitation by questions, bid
  withdrawal (leveled-commitment) allowed in
  connection with proxy agents

9
Combinatorial Auction Decision Support

• Fundamental Decisions
• Bid formation (contd.)
• Bidding language constraints Logic (AND / OR,
  XOR, OR-of XOR), expressiveness vs. simplicity
• Winner determination
• Integer programming small problem size, exact,
  slow, VCG
• GA / SA / Greedy
• big problem size, approximate, fast
• computational speed vs. economic efficiency
• Winner determination constraints quantity /
  turnover share, no. provider

10

• Basics of the Combinatorial Auction
• Design of an Auction Framework
• Economic Validation of Auction Design
• Summary and Outlook
• Literature

11
Combinatorial Auction Economic Validation

• Analysis and Prototype Design
• Properties of procurement / allocation process
• Experimental Game Theory
• Field implementation of prototype
• Small scale experimental field evaluation
• Iterative redesign
• Automated Mechanism Design
• Simulation implementation
• Evaluation using benchmark
• Iterative parameter optimization
• Evaluation
• Mechanism evaluation using benchmark
• Meta language description
• Auction description using XML-based CAMeL

12

• Basics of the Combinatorial Auction
• Design of an Auction Framework
• Economic Validation of Auction Design
• Summary and Outlook
• Literature

13
Combinatorial Auction Summary Outlook

• Advantages of the approach
• Enables trade off in practical environments
• Two-step validation of economic properties
• Development of a Combinatorial Auction Meta
  Language (CAMeL)
• Enables description of auction in all phases of
  design process
• CAMeL integrates
• Bidding Language description
• Auction constraints and admission rules
• Auction process control

14

• Basics of the Combinatorial Auction
• Design of an Auction Framework
• Economic Validation of Auction Design
• Summary and Outlook
• Literature

15
Literatur

• Ausubel, L. M., Cramton, P. and Milgrom, P.
  (2005) The Clock-Proxy Auction A Practical
  Combinatorial Auction Design. In Combinatorial
  Auctions.(Eds, Cramton, P., Shoham, Y. and
  Steinberg, R.) MIT Press.
• Bichler, M., Pikovsky, A., Setzer T. (2005)
  Kombinatorische Auktionen in der betrieblichen
  Beschaffung - Eine Analyse grundlegender
  Entwurfsprobleme. Wirtschaftsinformatik.
• Hohner, G., Rich, J., Ng, E., Reid, G.,
  Davenport, A. J., Kalagnanam, J., Lee, H. S. and
  Chae, A. (2003) Combinatorial and
  Quantity-Discount Procurement Auctions Benefit
  Mars, Incorporated and its Suppliers. Interfaces,
  33, 23-35.
• Kalagnanam, J. and Parkes, D. C. (2003) Auctions,
  Bidding and Exchange Design. In Supply Chain
  Analysis in the eBusiness Area.(Eds, Simchi-Levi,
  D., Wu, S. D. and Shen, M. Z.) Kluwer Academic
  Publishers.
• Kameshwaran, S. and Narahari, Y. (2001) Auction
  Algorithms for Achieving Efficiencies in
  Logistics Marketplaces. Proceedings of the
  International Conference on Energy, Automation
  and Information Technology.
• McAfee, P. and McMillan, J. (1987) Auctions and
  Bidding. Journal of Economic Literature, 25,
  699-738.

16
Literatur

• McMillan, J. (1995) Why Auction the Spectrum?
  Telecommunications Policy, 19, 191-199.
• Nisan, N. (2005) Bidding Languages. In
  Combinatorial Auctions.(Eds, Cramton, P., Shoham,
  Y. and Steinberg, R.) MIT Press.
• Porter, D., Rassenti, S. J., Smith, V. L. and
  Roopnarine, A. (2003) Combinatorial Auction
  Design. Interdisciplinary Center for Economic
  Science, George Mason University.
• Sandholm, T. (2002a) Algorithm for optimal winner
  determination in combinatorial auctions.
  Artificial Intelligence, 135, 1-54.
• Schwind, M., Stockheim, T. and Rothlauf, F.
  (2003) Optimization Heuristics for the
  Combinatorial Auction Problem. Proceedings of the
  Congress on Evolutionary Computation CEC 2003,
  Canberra, Australia, pp. 1588-1595.
• Schwind, M., Weiss, K. and Stockheim, T. (2004)
  CAMeL - Eine Meta-Sprache für Kombinatorische
  Auktionen. 2004-111, Institut für
  Wirtschaftsinformatik, Johann Wolfgang
  Goethe-Universität.
• Smith, V. L. (1994) Economics in Laboratory. The
  Journal of Economic Perspectives, 8, 113-131.
• Vickrey, W. (1963) Counterspeculation, Auctions,
  and Competitive Sealed Tenders. Journal of
  Finance, 16, 8-37.