Showing posts with label auctions. Show all posts
Showing posts with label auctions. Show all posts

Thursday, February 1, 2024

Art sales by brokers

 High priced art sold by Sotheby's isn't all sold at auction. Sometimes it is privately brokered.

The Financial Times has the story of how a trial is shedding light on the process.

Sotheby’s trial provides a peek behind the curtain of private art sales. Testimony in New York case pitting wealthy oligarch against the famed auction house has shed new light on high-end transactions. by Madison Darbyshire 

"While Sotheby’s is known for its prestigious public art auctions, a significant part of its business is brokering private deals directly between buyers and sellers. Those private sales are a particularly shrouded corner of the art market, where work changes hands through dealers such as Sotheby’s and identities are concealed on both sides of the purchase.

"Often an owner will have no idea to whom they are selling, and the buyer little clue from where the art is coming. Sometimes works are never even displayed — instead living in storage, passing from hand to hand.

...

" "For private sales Sotheby’s dealers search for works their clients are seeking, working internally to find willing sellers and negotiate a price. Emails showed Valette asking a colleague to have her client name a price for a RenĂ© Magritte painting that Bouvier wanted. While the painting had initially been estimated by Sotheby’s to be worth less than $10mn based on previous auction data, the client was willing to part with it for $25mn. Bouvier purchased it from Sotheby’s for $24mn, and sold it to Rybolovlev shortly afterwards for $43.5mn."

Sunday, January 7, 2024

Market Design for Surface Water , by Ferguson and Milgrom

 The potential market for surface water is a market in which any transfer of rights involves externalities affecting the water consumption of others.

Market Design for Surface Water  by Billy A. Ferguson & Paul Milgrom, NBER WORKING PAPER 32010, DOI 10.3386/w32010, December 2023

Abstract: Many proposed surface water transfers undergo a series of regulatory reviews designed to mitigate hydrological and economic externalities. While these reviews help limit externalities, they impose substantial transaction costs that also limit trade. To promote a well-functioning market for surface water in California, we describe how a new kind of water right and related regulatory practices can balance the trade-off between externalities and transaction costs, and how a Water Incentive Auction can incentivize a sufficient number of current rights holders to swap their old rights for the new ones. The Water Incentive Auction adapts lessons learned from the US government’s successful Broadcast Incentive Auction.

From the introduction:

"Why is there so little water trading in California despite the heterogeneous uses and huge price differences? The consensus among many economists studying water is that much of the problem lies in an archaic system of property rights, which was perhaps simple and clear enough to function well when California was first settled, but which is dysfunctional today. We will argue below that trading in traditional water rights creates externalities, so efficiency-enhancing changes in water allocations cannot be achieved by exhausting profitable bilateral trades. Rather, it requires a coordinated, multilateral effort. The next section on the Institutional Background provides a description of water rights and the externalities that can result from trade or from certain other decisions about uses. What is most novel in this paper comes after that: we analyze a mechanism that enacts a change in water rights that could lead to much more efficient trade.

Our analysis draws on lessons learned from the US Broadcast Incentive Auction in 2016-17, in which some rights to use radio spectrum for television broadcast were combined, converted, and subdivided into more flexible rights that were better suited for wireless broadband communications. This was accomplished using an auction procedure designed to provide an “incentive” for broadcasters to participate. As in that auction, participation in an analogous Water Rights Incentive Auction could be entirely voluntary, with current water users incentivized to participate because they could trade their existing rights for new, more flexible rights and possibly additional payments as determined by an auction. Just as the Broadcast Incentive Auction achieved its goals described in the National Broadband Plan even though many broadcasters chose not to sell their rights, a Water Incentive Auction could provide the substantial benefits of more flexible water rights even if many water users decline to participate. We describe some details of a possible Water Incentive Auctions in a later section of this paper."

Monday, December 25, 2023

Auctioning fresh fish, quickly. by Hafalir, Kesten, Sherstyuk and Tao

 Here's an auction for when leisurely price discovery is costly.

When Speed is of Essence: Perishable Goods Auctions by Isa Hafalir, , Onur Kesten, , Katerina Sherstyuk, , Cong Tao.  December 2023

Abstract: We study a remarkable auction used in several fish markets around the world, notably in Honolulu and Sydney, whereby high-quality fish are sold fast through a hybrid auction that combines the Dutch and the English formats in one auction. Speedy sales are of essence for these perishable goods. Our theoretical model incorporating “time costs” demonstrates that such Honolulu-Sydney auction is preferred by the auctioneer over the Dutch auction when there are few bidders or when bidders have high time costs. Our laboratory experiments confirm that with a small number of bidders, Honolulu-Sydney auctions are significantly faster than Dutch auctions. Bidders overbid in Dutch, benefiting the auctioneer, but bidding approaches risk-neutral predictions as time costs increase. Bidders fare better in the Honolulu-Sydney format compared to Dutch across all treatments. We further observe bidder attempts to tacitly lower prices in Honolulu-Sydney auctions, substantiating existing concerns about pricing in some fish markets.

From the introduction:

"We explore a seemingly peculiar and largely under-studied dynamic auction format employed in several perishable goods markets around the world, such as in Honolulu and Sydney fish markets. In this auction, the auctioneer sets a starting price that is neither as low as in an English auction nor as high as in a Dutch, but at a middle ground, allowing bidders to bid at the onset (either by raising their hands during a verbal Honolulu auction or by clicking a button during an automated Sydney clock auction). If at least one bidder bids, the auction proceeds as an English (ascending price) auction. If there is no initial interest, the price begins to drop, as in a Dutch (descending price) auction. However, once a bidder bids, other bidders are allowed to counter-bid, potentially reverting the auction to an English auction. Although this auction format has been documented (Feldman, 2006) and is apparently employed in a number of fish markets in France and Denmark (Guillotreau and Jim´enez-Toribio, 2006; Laks´a and Marszalec, 2020) as well as in Honolulu and Sydney,2 little is understood about the reasons for its emergence and its advantages over more traditional descending-only Dutch auction that is also commonly used for perishable goods."

##########
Update:
Joshua Gans points me to this related paper in Management Science

Channel Auctions
Eduardo M. Azevedo , David M. Pennock, Bo Waggoner , E. Glen Weyl 
Published Online:4 Mar 2020 https://doi.org/10.1287/mnsc.2019.3487

Abstract
Standard auction formats feature either an upper bound on the equilibrium price that descends over time (as in the Dutch auction) or a lower bound on the equilibrium price that ascends over time (as in the English auction). We show that in some settings with costly information acquisition, auctions featuring both (viz., a narrowing channel of prices) outperform the standard formats. This Channel auction preserves some of benefits of both the English (truthful revelation) and Dutch (security for necessary information acquisition) auctions. Natural applications include housing, online auction sites like eBay, recording transactions on blockchains, and spectrum rights.

This paper was accepted by Joshua Gans, business strategy.

Thursday, February 9, 2023

Ticketmaster and the secondary market for tickets, by Budish and Bhave

 Here's a still-timely paper that was a work in progress for quite a while.

Primary-Market Auctions for Event Tickets: Eliminating the Rents of “Bob the Broker”? By Eric Budish and Aditya Bhave, American Economic Journal: Microeconomics 2023, 15(1): 142–170 https://doi.org/10.1257/mic.20180230 

Abstract: "Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer and encourages socially wasteful rent-seeking by ticket brokers. What about using an auction? This paper studies the introduction of auctions into this market by Ticketmaster in the mid-2000s. By combining primary-market auction data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster’s auctions “worked”: they substantially improved price discovery, roughly doubled performer revenues, and, on average, nearly eliminated the potential arbitrage profits associated with underpriced tickets. We conclude by discussing why, nevertheless, the auctions failed to take off."

From the conclusions:

"over the decade that has passed since the time of the data, rather than coming into more widespread use, primary-market auctions for event tickets instead disappeared. LexisNexis searches suggest that TM auctions were in use from their introduction in 2003 through around 2011, with a peak in around 2005–2008 but that with limited exceptions, they have not been used since.33

"We conclude by speculating as to why the auctions failed to take off. As discussed in the introduction, economic theory suggests that there are two basic choices for how to eliminate the rents of and rent-seeking by Bob the Broker: ban resale or set a market-clearing price. While auctions are no longer in use, what has at least partly taken off is using available data, including historical resale values, to set fixed prices in the primary market that more accurately approximate market clearing.

...

"We conjecture that the popularity of this practice relative to auctions partly reflects the simplicity and convenience for fans of posted prices relative to auctions, as has been documented more widely by Einav et al. (2018) and partly reflects a harder-to-model “repugnance” cost of ticket auctions (Roth 2007). 

...

"Setting market-clearing prices and banning resale are two ways to modify the primary market to eliminate Bob the Broker’s rents. TM has also aggressively expanded into the secondary market, acquiring TicketsNow for $265 million in 2008 (as well as UK-based Get Me In! for an undisclosed amount); entering into secondary-market partnerships with the National Basketball Association, National Hockey League, and National Football League (Major League Baseball has a partnership with StubHub); and most recently launching a secondary market within ticketmaster.com called Fan-to-Fan Resale that lists available primary-market tickets alongside secondary-market tickets.38 This business exploits TM’s unique ability, for events where it manages the primary market, to verify the authenticity of tickets in the secondary market. With transaction fees of about 30–40 percent in the largest secondary-market venues (Budish 2019)—of the full resale value, not of just the markup versus the fixed price—perhaps eliminating the rents of Bob the Broker is less profitable than taking a cut."


Monday, December 19, 2022

Leveling the stock market playing field: SEC proposals

 The WSJ has the story: 

SEC Proposes Rules That Would Squeeze Stock-Market Middlemen. Agency is formally considering biggest overhaul of stock-market structure since mid-2000s  By Paul Kiernan and Alexander Osipovich

"The Securities and Exchange Commission voted Wednesday to advance the biggest changes to U.S. stock-market rules since the mid-2000s, aiming to give small investors better prices on their trades and reduce some advantages enjoyed by high-speed trading firms.... Voting to advance the rules opens them to public comment until at least March 31 before the agency can decide whether to finalize them.

...

"The broad idea motivating the proposals is to use greater competition for investors’ orders to deliver better prices, while stepping up regulations of the firms that profit from handling retail stock trades.

...

"The centerpiece of the SEC’s plans is a proposal for brokers to send many small-investor stock orders into auctions. This would enable a mix of high-speed traders and institutional investors such as hedge funds or pension funds to compete to fill the orders, with the idea that investors would get better prices as a result—higher prices if they are selling shares, or lower prices if they are buying.

"The auctions would apply to so-called marketable orders—in which investors buy or sell stocks at the currently available price—less than $200,000 in size and placed by investors who average fewer than 40 trades a day. They would be required to last between one-tenth and three-tenths of a second, roughly the duration of a blink of an eye, and would likely be run by exchanges. 

Requiring such auctions would be a big change. The SEC says brokers send more than 90% of marketable orders to wholesalers. Unlike exchanges, which display price quotes publicly and allow a variety of market players to attempt to fill orders, wholesalers trade directly against the incoming retail flow, an arrangement that effectively prevents other market players such as institutional investors from interacting with individual investors’ orders."


HT: Eric Budish

Monday, November 28, 2022

The market for large dinosaur fossils

Should fossils be regarded as national treasures, or as natural resources, or perhaps works of art? 

The NY Times has the story:

As Dinosaur Fossils Fetch Millions, There’s Many a Bone to Pick. Fossils are a multimillion-dollar business, bringing legal disputes, nondisclosure agreements and trademarks to the world of paleontology.  By Julia Jacobs and Zachary Small

"Fossil hunting has become a multimillion-dollar business, much to the chagrin of academic paleontologists who worry that specimens of scientific interest are being sold off to the highest bidders.

...

"Things were simpler at the beginning of his career, Larson said, when universities, museums and a smaller group of private collectors were the only ones who cared about buying pieces of natural history.

"It was not until 1997, with the sale of Sue, that dinosaurs started to be viewed as potential centerpieces of auctions.

...

"Many scientists are aghast at the growing commercial market, and increasingly anxious that scientifically important specimens will disappear into private mansions. Paleontologists are also concerned that the market could encourage illegal digging, and that American landowners — who, by law, generally own the fossils found on their land — would favor commercial fossil hunters over academic researchers.

“Ranchers who used to let you go and collect specimens are now wondering why they should let you have it for free,” said Jingmai O’Connor, a Field Museum paleontologist, “when a commercial collector would dig up the bones and split the profit.”

"Fossil diggers and dealers in the commercial sphere counter that if not for them, these specimens on private land would be left to erode further, never to be found.

"The United States is an outlier legally. Other dinosaur-rich nations, including Mongolia and Canada, have laws making fossils the property of the government. Thomas Carr, a paleontologist at Carthage College in Wisconsin, said he believed that the lack of protections for “natural heritage” puts scientists in the United States at a disadvantage."

Monday, September 5, 2022

Paul Milgrom on auctions for water rights

 ZME Science (in Romania) interviews Paul Milgrom about water shortages (in California):

Could auctions help California make better use of its water? This leading economist believes so.  by Mihai Andrei  

"“People get confused when they think about auctions, they think about bidding for a piece of art or something like that,” Milgrom told ZME Science in an interview. “What economists mean when we talk about auction is a process of decentralized resource allocation using prices. It means that we’ve got people who have knowledge about what they need and how valuable things are to them, and we take account of that information to allocate resources specifically, we make bids, and those things are converted to determine prices.”

“If you’re not using an auction you either mean you’re not using prices to guide the resource allocation or you’re not using individual bids. If you don’t use that information, you’re gonna have waste.”

"Waste also means opportunity, and the opportunity Milgrom sees would be transferring water use from those who value it less to those who value it more (and are willing to pay more for it).

...

“In California, less than 5% of water is reallocated, even in the most severe drought,” Milgrom says

“The prices adjust [water gets more expensive], but the reallocation doesn’t adjust even when there is insufficient water. The prices are responsive, but the value of trade isn’t very responsive. So why doesn’t the market work, and what can we do to fix it?”

“It’s not what you expect in a market. What you would expect in a well-functioning market is that the water allocation would increase more to adapt to sending more water into higher value uses and less water into less-value uses. So we’d expect more trading to go on. The fact that it didn’t suggests there’s a problem with the market.”

...

"Designing a large-scale market for water isn’t without precedent. In Australia, a much larger proportion of water is being traded (about 50%); with a roughly similar standard of living, and similar environmental challenges, people in Sydney use about half that amount. But while Australia can serve as an inspiration for California, the same system can’t be replicated exactly.

“We can’t apply the Australian model to California because there are different property rights regimes, the rights are defined differently. They also don’t take into account return flows, which California water law does.”

...

"“I’m cautiously optimistic,” Milgrom says, drawing from his experience with auctioning broadcast spectrum space. “Part of what’s making me optimistic that this is the right time is the progress in measurements and hydrological models.”

Wednesday, June 22, 2022

Russian Journalist’s Nobel Medal Sells for $103.5 Million, with proceeds to UNICEF for Ukrainian refugees.

 The NYT has the story: it exemplifies quite a number of things (including jump bidding in a reserve price charity auction...)

Russian Journalist’s Nobel Medal Sells for $103.5 Million. Dmitri A. Muratov, the editor of the independent newspaper Novaya Gazeta, will donate proceeds to UNICEF to help Ukrainian child refugees.  By Kalia Richardson

"The Nobel Peace Prize put up for auction by the Russian journalist Dmitri A. Muratov to help Ukrainian refugees sold Monday night for $103.5 million to an anonymous buyer, obliterating the record for a Nobel medal.

"The proceeds from the auction will go to UNICEF to aid Ukrainian children and their families displaced by Russia’s invasion of their country.

"Mr. Muratov is the editor in chief of the independent newspaper Novaya Gazeta, which suspended publication in March in response to the Kremlin’s increasingly draconian press laws. In an interview with The New York Times last month, he said he was inspired to auction the award he won last year by the Danish physicist Niels Bohr, who sold his medal to help civilian relief in Finland following the Soviet invasion of that country in 1939.

...

"The previous record for auctioning off a Nobel medal came in 2014, when the prize belonging to James Watson, who shared in the discovery of the double-helix structure of DNA, sold for $4.1 million ($4.76 million, including the commission that goes to the auction house).

"Heritage Auctions, which handled the sale of Mr. Muratov’s medal, has sold five former Nobel Prizes, including the one awarded to Watson’s co-discoverer, Francis Crick. That medal sold for $2.27 million in 2013.

"Josh Benesh, the chief strategy officer for Heritage Auctions, which will not take a commission on the sale, said he was flabbergasted by the final price. The bidding had been mainly cruising along in increments of $100,000 or $200,000 when it suddenly spiked from $16.6 million to $103.5 million. Gasps filled the room when a Heritage Auctions employee manning the phone relayed the figure"

*********

Here's the Heritage Auction site:

 The Dmitry Muratov Nobel Peace Prize Charity Auction to Benefit UNICEF's Child Refugee Fund #790 / Lot #1

Here are some posts about earlier sales of Nobel prize medals, some by economists:

Saturday, October 26, 2019

Wednesday, February 16, 2022

The Art Mart

 Art galleries are (among other things) middlemen, intermediating between artists and buyers of art, who may range from passionate consumers to institutional investors. (There are of course also passionate consumers who are also investors in an asset class that, like real estate, you can enjoy while it appreciates.)  

Of course, the galleries' incentives may not always be perfectly aligned with those of creators and consumers.  Galleries play a big role in helping bring young artists to market, and matching them to consumers and investors.  But as artists become more well known, other opportunities present themselves.

Here's a story from the WSJ about tensions involving sales by galleries versus sales by auction.

Why Artwork Flipping Can Incur the Wrath of Dealers. Dealers want to control the artists’ narrative and pricing, but investors want to leave it to the market  By Daniel Grant

"Chicago gallery owner Rhona Hoffman has three or four collectors she won’t sell to again.

“They broke the rule,” says the contemporary art dealer.

"That commandment to collectors: If you later decide to sell your artwork, consign it back to the gallery—do not put it up at auction.

"When buyers ignore this rule and auction off recently purchased pieces, it’s called flipping."

**********

Here's an older story, from Artsy, about the British artist/entrepreneur Damien Hirst, who has a long history of ambivalence about the role of galleries in the design of the market for art.

How Damien Hirst’s $200 Million Auction Became a Symbol of Pre-Recession Decadence by Nate Freeman

"On September 15, 2008, Sotheby’s was set to auction off 223 brand new works by Damien Hirst, including top-flight examples of his whole animals in formaldehyde, medicine cabinets, and spin paintings. It was an unprecedented incursion by an auction house into the primary market, and an unabashedly flashy sale accompanied by a global marketing tour with stops in Kiev, Aspen, and New Delhi.

...

"The Hirst auction, which the artist had dubbed “Beautiful Inside My Head Forever,” exceeded all expectations, grossing $200.75 million over the course of two sales in the span of 24 hours and becoming the most expensive single-artist auction ever. The 56 lots at the evening sale went 97% sold, and the two lots that did not find buyers during the auction were sold before the night was over. Over a third of the buyers had never bought contemporary art before. On the cusp of a global recession, Hirst walked away with $172 million.

...

"Taking work directly to market through an auction house would siphon millions of dollars from Hirst’s powerful dealers, Jay Jopling and Larry Gagosian. Hirst’s set up was typical of any in-demand artist at the time: He made work, and his dealers decided where to place it. Ordinarily, it is frowned upon when a vetted collector flips a work at auction. But Damien embraced that very act of betrayal and decided to pre-flip his own works to whoever could pay, with the support of Dunphy, whom he trusted more than his two dealers.

“Frank has my best interests at heart,” Hirst told The Economist in a story published before the sale. “Dealers say they do, but they don’t.”

Tuesday, January 4, 2022

Paul Milgrom and Robert Wilson. From theory to practice in auctions (in French)

 Here's a tribute to Milgrom and Wilson in French (but Google translate does a pretty good job):

Paul Milgrom et Robert Wilson. De la théorie à la pratique des enchères, par Florence Naegelen, Dans Revue d'économie politique 2021/6 (Vol. 131), pages 825 à 847

G translate: Paul Milgrom and Robert Wilson. From theory to practice in auctions

Here's one snippet:

"R. Wilson ([1967], [1969] and [1977]) provided the first analysis of Bayesian equilibrium strategies in the case of a common and uncertain value. This work was extended by P. Milgrom [1981a] and by many other authors subsequently. [6] Introducing the hypothesis of conditional independence according to which the signals received are positively correlated, Wilson [1969] thus showed that, in this context, the winner was the one who overestimated the true value of the object the most. He also highlighted how agents should determine their offers by incorporating into their strategies that the winner is the one with the highest signal."

Sunday, October 24, 2021

The Economist celebrates Milgrom and Wilson, and economic engineering

 The Economist has weighed in on the 2021 Nobel Prize in Economics:

The Nobel prize in economics rewards advances in auction theory. For the third time since 2007, it goes to designers of market mechanisms, Oct 17th 2020

"In 1991 Alvin Roth, who in 2012 would share the Nobel prize for economics, was asked how the discipline might change over the century to come. “In the long term”, he wrote, “the real test of our success will be not merely how well we understand the general principles which govern economic interactions, but how well we can bring this knowledge to bear on practical questions of microeconomic engineering.” Sweden’s Royal Academy of Science seems to agree. On October 12th it gave this year’s Nobel prize to Paul Milgrom and Robert Wilson, both of Stanford University, for their work on auction theory and design. Their work epitomises economics as engineering.

...

"The pursuit of economics as a form of engineering means that Messrs Milgrom and Wilson are more enmeshed in the real world than the typical academic. Both have consulted for regulators and firms. Mr Milgrom advised Time Warner and Comcast on their participation in radio-spectrum auctions in 2006; his efforts helped save his clients more than $1bn. In 2009 he co-founded a firm, Auctionomics, that provides consulting services to those looking to operate and to bid in auctions (many of the sort designed by the prizewinners).

"It is a different sort of work from that which many aspiring scholars imagine themselves to be pursuing. But the rewards the laureates have reaped in academia and beyond certainly advertise the power wielded by economic engineers."

Tuesday, April 6, 2021

Cloud Pricing: The Spot Market Strikes Back, by Dierks and Seuken in Management Science

 Sven Seuken writes:

"I just read your blog post about the new paper on economics of cloud computing, which is very interesting. Given that you highlighted the authors' thoughts on why auctions are not used in cloud computing markets, I thought you might be interested in a recent paper coming out of my group, which was just published at Management Science: https://pubsonline.informs.org/doi/10.1287/mnsc.2020.3907

"In our model, we assume that a cloud provider must *always* offer a standard, non-preemptible fixed-price market (because only this satisfies many customers' business needs, which is in line with the arguments that Hummel and Schwarz provide). But we show that a cloud provider can typically increase her profit and create a Pareto improvement for the users by *additionally* selling idle instances on a preemptible spot market (e.g., via an auction).

"Here's the paper and abstract:

Ludwig Dierks , Sven Seuken 
Published Online:25 Feb 2021 https://doi.org/10.1287/mnsc.2020.3907

Abstract: Cloud computing providers must constantly hold many idle compute instances available (e.g., for maintenance or for users with long-term contracts). A natural idea, which should intuitively increase the provider’s profit, is to sell these idle instances on a secondary market, for example, via a preemptible spot market. However, this ignores possible “market cannibalization” effects that may occur in equilibrium as well as the additional costs the provider experiences due to preemptions. To study the viability of offering a spot market, we model the provider’s profit optimization problem by combining queuing theory and game theory to analyze the equilibria of the resulting queuing system. Our main result is an easy-to-check condition under which a provider can simultaneously achieve a profit increase and create a Pareto improvement for the users by offering a spot market (using idle resources) alongside a fixed-price market. Finally, we illustrate our results numerically to demonstrate the effects that the provider’s costs and her strategy have on her profit.

Wednesday, March 17, 2021

Bob Wilson's Nobel lecture, in Econometrica

Here is Bob Wilson, in a very low key account of (what I would have described as) how he saw the future, changed economics, mobilized a generation of scholars, and won the Nobel.

Strategic Analysis of Auctions  by Robert B. Wilson, ECONOMETRICA: MAR 2021, VOLUME 89, ISSUE 2p. 555-561, https://doi.org/10.3982/ECTA19347

Abstract: The diploma for the Sveriges Riksbank Prize in Economics Sciences in Memory of Alfred Nobel that I shared in 2020 with Paul Milgrom cites “improvements in auction theory and inventions of new auction formats”.1 As requested by the Royal Swedish Academy of Sciences, this lecture describes the origin of my work on auctions. It complements the Nobel Lecture by Paul Milgrom (2021) that describes later developments in theory and practice.


Here's footnote 4:

"As an MBA student in 1959 I received a failing grade on a written analysis of a case involving competitive bidding because I invoked a mathematical analysis rather than the mandatory ‘administrative point of view’ "

***************

Earlier post:

Monday, October 12, 2020

Wednesday, February 10, 2021

London Metals Exchange proposes to end in-person trading

 Another colorful market mechanism looks set to bite the dust, replaced by electronic/computerized trading.

The WSJ has the story:

After 144 Years, London Metal Exchange Proposes Closing Trading Ring  By Joe Wallace

"The London Metal Exchange is proposing closing its open-outcry ring, where traders have swapped metals like copper and lead using shouts and hand signals for 144 years, in a bid to attract more financial players.

"The LME temporarily closed the ring when Covid-19 ripped through the U.K. in March, judging the tight circle of red couches that dozens of traders crowd around to be a health risk. The exchange, owned by Hong Kong Exchanges & Clearing Ltd. 388 3.94% , is now proposing shutting it for good.

"The ring began life when the LME was founded above a London hat shop in 1877, though its origins date to sawdust circles around which merchants bought and sold metals in the early 1800s,

...

"If the change goes through, the LME would join CME Group’s New York Mercantile Exchange, which closed its open-outcry trading floor in lower Manhattan in 2016. The LME said it planned to lay out its next steps by the end of June after feedback from market participant

...

"Trading in the ring takes place in frenetic five-minute sessions. To avoid miscommunication amid the hubbub, dealers use hand signals to convey orders. Three fingers facing down, for example, indicates that they would like to sell metal for a price ending in three. It is assumed that every dealer knows the previous digits.

"Though much trading had migrated to the LME’s electronic platform before the pandemic, many market participants still routed orders through ring members. Some thought that open-outcry remained the best way to set closing prices that are used as reference points in metal contracts globally"

Saturday, January 9, 2021

Prices and Decentralization Without Convexity: Milgrom's Arrow Lecture at Columbia (video)

 Columbia University Press posts a "video of Paul Milgrom's 2014 Kenneth J. Arrow Lecture that inspired Discovering Prices: Auction Design in Markets with Complex Constraints. Paul Milgrom discusses how prices can guide decentralized resource allocations in environments with non-convexities. His work on auctions led the Royal Swedish Academy of Sciences to award him and Robert Wilson the Nobel Memorial Prize in Economic Sciences for improvement to auction theory and invention of new auction formats."

Prices and Decentralization Without Convexity

****************

Related post:

Saturday, May 20, 2017

Sunday, December 13, 2020

Milgrom's "Discovering Prices" reviewed in the JEL by Kominers and Teytelboym

 In the December Journal of Economic Literature:

The Parable of the Auctioneer: Complexity in Paul R. Milgrom's Discovering Prices

by Scott Duke Kominers and Alexander Teytelboym, JOURNAL OF ECONOMIC LITERATURE, VOL. 58, NO. 4, DECEMBER 2020, (pp. 1180-96)

Abstract: Designing marketplaces in complex settings requires both novel economic theory and real-world engineering, often drawing upon ideas from fields such as computer science and operations research. In Discovering Prices: Auction Design in Markets with Complex Constraints, Milgrom (2017) explains the theory and design of the United States' "incentive auction" that reallocated wireless spectrum licenses from television broadcasters to telecoms. Milgrom's account teaches us how economic designers can grapple with complexity both in theory and in practice. Along the way, we come to understand several different types of complexity that can arise in marketplace design."

And from the conclusion:

"So what have we discovered from Prices? Modern marketplace design increasingly wrestles with complexity; as it does so, we need novel, tailor-made theory as well as supporting infrastructure. Complexity has real economic meaning—and can take multiple forms."

Wednesday, November 25, 2020

Bob Wilson and Paul Milgrom, interviewed about their work

 Stanford News has the story:

The bid picture: Stanford economists explain the ideas behind their 2020 Nobel Memorial Prize in Economic Sciences

"If designed correctly, auctions can distribute resources fairly, according to Stanford economists Robert Wilson and Paul Milgrom. The pair were awarded the 2020 Nobel Memorial Prize in Economic Sciences for their improvements to auction theory and inventions of new auction formats."


Here's the video:


Tuesday, November 17, 2020

CHOICE SCREEN AUCTIONS by Michael Ostrovsky

 Mike Ostrovsky points out that small design decisions can have big consequences, and considers how European regulations have caused search engines to be allocated on Android phones.

CHOICE SCREEN AUCTIONS by Michael Ostrovsky, NBER Working Paper http://www.nber.org/papers/  (a less gated version is here)


"ABSTRACT: Choice screen auctions have been recently deployed in 31 European countries, allowing consumers to choose their preferred search engine on Google's Android platform instead of being automatically defaulted to Google's own search engine. I show that a seemingly minor detail in the design of these auctions—whether they are conducted on a “per appearance” or a “per install” basis—plays a major role in the mix and characteristics of auction winners, and, consequently, in their expected overall market share. I also show that “per install” auctions distort the incentives of alternative search engines toward extracting as much revenue as possible from each user who installs them, at the expense of lowering the expected number of such users. The distortion becomes worse as the auction gets more competitive and the number of bidders increases. Empirical evidence from Android choice screen auctions conducted in 2020 is consistent with my theoretical results."


The auction rules: "In each country auction, search providers will state the price that they are willing to pay each time a user selects them from the choice screen in the given country. The three highest bidders will appear in the choice screen for that country. The provider that is selected by the user will pay the amount of the fourth-highest bid."

...

"In this paper, I show that a seemingly minor detail of the implementation of choice screen auctions plays a major role in their outcomes—and thus in the overall effectiveness of the antitrust remedy. Specifically, while the answer in the Q&A section of the document states that an auction “allows search providers to decide what value they place on appearing in the choice screen and to bid accordingly,” the auction, as implemented, charges these providers not for appearing in the choice screen but for being chosen by a user. 

"While the difference may seem to be just a matter of language, it is not. To see the intuition for the difference, consider a version of the auction with just one available spot and two bidders. Bidder A gets revenue $10 from each user who installs its search engine, and if it is shown as an option in the choice screen, then the probability that a user will choose it is 10%. Bidder B gets revenue $20 from each user who installs its search engine, but the probability that a user will choose it (if it is shown as an option in the choice screen) is only 1%. The value that bidder A has for appearing on the screen is therefore $1, and the value that bidder B has for appearing on the screen is $0.20. Thus, if the auction is conducted on the “per appearance” basis, then bidder A will win, will pay $0.20 per appearance, and will have its search engine chosen by users 10% of the time, while the dominant platform’s own search engine will be chosen 90% of the time. If, instead, the auction is conducted as implemented, with bidding and payment on the “per install” basis, then bidder B will win and will pay $10 every time its search engine is chosen (corresponding to $0.10 per appearance). The winner’s search engine will be chosen only 1% of the time, and the dominant platform’s one will be chosen the remaining 99% of the time. Thus, relative to the per appearance auction, the per install auction results in a lower likelihood that an alternative search engine will be chosen by the user (making it correspondingly more attractive to the dominant platform) and gives advantage to search engines that generate higher revenue per user vs. those that are more popular but generate less revenue on a per-user basis. I



Thursday, November 12, 2020

Another art museum cancels sale of art in response to pushback

 The NY Times has the story about another last minute cancellation of a "deaccessioning" sale by an art museum:

Baltimore Museum of Art Cancels Painting Sale that Drew Complaints--The museum was prepared to sell three major works to pay for salary increases and to diversify its collection, but many critics disagreed with the plan.   By Hilarie M. Sheets

"The Baltimore Museum of Art is pausing its plan to sell three major paintings from its collection. A Sotheby’s sale of works by Brice Marden, Clyfford Still and Andy Warhol was estimated to bring in $65 million to fund acquisitions of art by people of color and staff-wide salary increases.

"The decision, on the day of a planned auction of two of the works, came after weeks of criticism from people who opposed the sale and hours after a conversation between leaders of the museum and the Association of Art Museum Directors, a professional organization advancing best practices for art museums.

...

"In April, the association loosened its strict deaccessioning guidelines for the next two years to help museums under financial stress from the pandemic by allowing them to sell works to fund direct collection care, not just the acquisition of other artworks. While the Baltimore Museum has a balanced budget, its director, Christopher Bedford, said earlier this month he saw an opportunity to create an endowment for collection care that would then free up money for salary increases — a vision-based initiative in line with his efforts to bring greater equity to both its collections and workplace culture."

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Tuesday, October 27, 2020