Simultaneous Multiple Round Auctions
In class we have done a lot of exploration of the generalized second price (GSP) auction where bidders place bids and then the highest bidder pays the second highest price, the second highest pays the second highest price and so on. One common example where the GSP is companies such as Google and Twitter selling ads. GSP has proved extremely efficient in cases such as Google and Twitter where individual objects are being sold. However, in 1994, the United States government faced an issue when they had a goal of auctioning off telecommunication frequency slots. The challenge was that the value of each frequency was dependent on the number of slots owned. For example, if you owned 1 frequency it might be worth $2, but if you owned 2 frequency slots, they might be worth $4 each. What made this situation even more challenging was the varying needs of different companies in terms of what combination of frequencies they needed and the lack of information of what other people would be bidding. If a traditional auction method were to take place, the result would most likely be companies bidding extremely low in order to avoid suffering huge losses in situations where they win one auction but not a complementary auction. In order to solve this issue; economics came up with the Simultaneous Multiple Round Auction (SMRA).
The way this auction works is more similar to a first price English auction than a second price auction. Bidders start by bidding low and the winner ends up paying the highest bid price. During the auction, all bidders bid on all items simultaneously. After the first round of bids is placed, the highest bids for each item is announced and then a new round of bidding will take place with the new information. At any point in the auction, a bidder can also decide to withdraw their bid from a certain item. These rounds will continue to occur until no new bids take place and then the items are sold to the highest bidders. There are many aspects of this auction method that makes it efficient. Auctions are efficient when an allocation of a set of items is successfully paired with bidders who value them most. This is true in a SMRA as bidders are constantly forced to reveal their true values for items which leads to the set of items going to the bidders who value them the most. In the case of trying to obtain telecom frequencies, after each round, new information is revealed to each bidder and bidders get a better idea of what demand is like for each frequency and what their chance of obtaining their desired combination of frequencies is.
There were many other examples of this auction method being used successfully. One being the European 3G auctions which were very similar to the SMRA auction that took place in the United States. One interesting feature was that the largest license was exclusively reserved for new entrants to encourage more competition. The auction successfully incentivized large amounts of competition with the number of bidders exceeding the number of licenses, resulting in twice the projected revenue raised. Another example of a larger scale auction that took place was Auction 73 which entailed the sale of nearly 1,100 licenses at once. The result was a competitive auction with the licenses being allocated to 101 different firms across the United States.
Source: https://economics.indiana.edu/documents/papers/comparative-analysis-of-simultaneous-ascending-auctions-and-combinatorial-auctions.pdf