Gregor Berz , Florian Rupp, Brian Sieben: How the “Auction Cube” Supports the Selection of Auction Designs in Industrial Procurement

This paper proposes a novel method to guide users in selecting the most appropriate combination of basic auction forms for single lot events, taking into account both market and supplier criteria. Assuming a normal distribution for the bidders’ indifference prices, their strategic margin is benchmarked with a threshold derived from the standard deviation σ of the bidders‘ identical distribution. This delivers a basic criterion for the trade-off between first-price and second-price auctions.

Following Milgrom’s seminal approach, a reverse interpretation of the revenue equivalence theorem yields more differentiated recommendations. The proposed method allows users to quickly determine the most suitable auction design, leveraging the tremendous commercial potential of reverse auctions. To the best of the authors‘ knowledge, this is the first paper to propose a robust method to guide practitioners in selecting the right combination of basic auction types, considering both market and commercial criteria. The results are obtained using order statistics.

Part of the Munich Social Science Review, New Series, Volume 8 (2024)

The entire volume can be purchased online at this link.