Question

(a) Explain why VCG is better than multi ascending auction (MAE) in terms of exposure problem. Also, what modifications can be done in MAE to reduce the exposure problem.

(b)Explain why MAE is better than VCG in terms of winner’s curse.

Answer 1

A) In multi ascending auction :-

1). We characterize the optimal bidding in the simultaneous ascending auction for heterogeneous goods.

2). Licenses are heterogeneous, and the global bidder enjoys synergy if wins both licenses. The probability of an inefficient allocation is up to 9 percent in the SAA auction.

3) The probability that the global bidder will end up with a loss is 6 percent in the SAA auction.

4) If the global bidder is making a loss, then the SAA's revenue is higher than the VCG auction’s revenue.

But on the other hand :-

VCG is an efficient auction that gives the highest revenue among all incentive compatible, individually rational, efficient auctions. In the literature, there are examples which show that VCG mechanism may give extreme low revenue in complete information settings.

Modifications which can be done are :-

The down-side of the ascending auction is that it might also foster collusion and demand reduction.
Interestingly, it might be the ability of the ascending auction to allow bidders to coordinate
their behavior that makes the ascending auction work so well in environments with synergies.
However, it is also evident that specific design elements of ascending combinatorial auctions
such as price-guidance (RAD) or limited bidding combinations (HPB) might be important
to further simplify the complex decision process for bidders.

B) The winner's curse is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item.

In a common value auction, the auctioned item is of roughly equal value to all bidders, but the bidders don't know the item's market value when they bid. Each player independently estimates the value of the item before bidding.Therefore in this case MAE serves better then VCG.