The research studies identification and estimation in simultaneous multi-unit first-price auctions with and without combination bidding. The following issues are pursued: First, theoretical properties of bidding equilibria are examined. Conditions under which combination bidding may arise even in the absence of cost synergies are explored. It is shown that combination bidding may also serve as a tool to leverage market power across the different units. As a result, the welfare consequences of allowing combination bidding in the first price auction are ambiguous, and depend on the importance of the cost synergies. Second, it is investigated under what conditions bidders' private information can be identified from observed bid data under the assumption that bidders behave optimally. It is shown that synergistic effects are not identified if bidders are restricted to submit bids for stand-alone units only. A necessary condition for identification of synergies is that bidders are permitted to submit a full set of combination bids. Third, an estimation method is investigated that enables to quantify private information and synergistic effects in multi-unit auctions from observed bid data. The estimation method extends the single object method by Guerre, Perrigne and Vuong (2000) which is based on the first order condition of optimally chosen bids to a multi-object setting. Parametric estimation methods are considered. Fourth, data on auctions held by the London Transportation authority to award contracts to service bus routes have been collected. Two special features of these auctions are that several bus routes are auctioned at the same time, and that bidders may submit combination bids in addition to stand-alone bids. In other words, the London bus routes market is an example of a combinatorial auction. Fifth, the research develops numerical methods to calculate equilibrium outcomes in multi-unit first-price auctions under alternative auction rules. Specifically, equilibrium outcomes for auctions with and without combination bids will be compared.
This research complements recent theoretical advances in the design of multi-unit auctions by studying the identification and estimation problem and providing empirical evidence on a specific multi-unit auction market. The research is one of the first attempts to study identification and estimation in multi-unit auctions in general. It will advance empirical methods for multi-unit auctions. In addition, the analysis will develop tools to assess properties of multi-unit auction markets. Welfare gains (or losses) of permitting combination bidding in the London bus routes market will be determined. The magnitude of cost synergies and their effects on the efficiency of multi-unit auctions will be investigated. The adequacy of the current awarding scheme will be investigated. It will provide general guidance for markets in which multi-units are sold simultaneously.
