The Effect of Bid Withdrawal in a Multi-Object Auction

Abstract

The Federal Communications Commission currently utilizes a simultaneous multi-round ascending bid auction to allocate Personal Communication Services licenses. In the auction, participants are allowed to withdraw standing bids at a penalty. The penalty is equal to the difference between the price at which the bid was withdrawn and the highest bid after the withdrawal. The withdrawal rule was added to the auction design to assist bidders wishing to assemble combinations of licenses who may find themselves stranded with an assortment of licenses for which their bids sum to more than their value. This paper reports results of experiments that examine the effect of the withdrawal rule in environments in which losses can occur if packages of licenses must be assembled piecemeal. The experiments demonstrate that there is a tradeoff with using the rule: efficiency and revenue increase, but individual losses are larger. Furthermore, the increased efficiency does not outweigh the higher prices paid so that bidder surplus falls in the presence of the withdrawal rule.