Design of Combinatorial Auctions for Allocation and Procurement Processes Michael Schwind JWG-University Frankfurt CEC-2005 21. 7. 2005 Technical University of Munich Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Basics of the Combinatorial Auction Design of an Auction Framework Economic Validation of Auction Design Summary and Outlook Literature Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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. Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Combinatorial Auction Variants • Multidimensional Auction: – Exchange of complex preference information – Various dimensions: e. g. quality, delivery time • Multi-attributive Auction: – Impact of attributes on W 2 P 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 Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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: • 2 j-1 combinations of bids in worst case – Incentive Compatibility / Stability of Mechanism: • Vickrey-Clarke-Groves (n+1 * NP-hard) Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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. Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Basics of the Combinatorial Auction Design of an Auction Framework Economic Validation of Auction Design Summary and Outlook Literature Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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: multiattributive, manual / automated bid construction (logistics), preference elicitation by questions, bid withdrawal (leveledcommitment) allowed in connection with proxy agents Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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 Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Basics of the Combinatorial Auction Design of an Auction Framework Economic Validation of Auction Design Summary and Outlook Literature Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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 CAMe. L Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Basics of the Combinatorial Auction Design of an Auction Framework Economic Validation of Auction Design Summary and Outlook Literature Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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 (CAMe. L): – Enables description of auction in all phases of design process – CAMe. L integrates: • Bidding Language description • Auction constraints and admission rules • Auction process control Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Basics of the Combinatorial Auction Design of an Auction Framework Economic Validation of Auction Design Summary and Outlook Literature Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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 e. Business 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. – Mc. Afee, P. and Mc. Millan, J. (1987) Auctions and Bidding. Journal of Economic Literature, 25, 699 -738. Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
Literatur – Mc. Millan, J. (1995) Why Auction the Spectrum? Telecommunications Policy, 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. (2002 a) 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) CAMe. L - 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. Dipl. Wirtsch. Ing. Michael Schwind, Projekt PREMIUM Internetökonomie
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