IIMA - Course Catalogue
Auctions and Market Design
Prof. Jeevant Rampal
Course Description & Objectives
This course covers the two closely-related topics: auctions, and market design. While auctions allocate limited resources using money (e.g. spectrum auctions), market design deals with allocation methods that cannot use money due to ethical or legal reasons (e.g. allocating scarce Kidneys among patients in-need of a transplant). Recently, both these topics have recently received the Nobel prize for Economics: Paul Milgrom and Robert Wilson (2020) primarily for their work in auctions, and Alvin Roth and Lloyd Shapley (2012) primarily for their work in market design. These awards underline the practical importance of both these topics.
Auctions have become increasingly important as running them has become substantially easier in an online world, and corporates and policymakers have realized their potential to unlock value and provide efficient allocation of scarce resources. Items traded in auctions include commodities like fish, flowers, and rough diamonds, financial securities like government bonds, natural resources like mineral rights and oil leases, radio spectrum, and electricity, and advertising space on internet search engines, among many other examples. Auctions are strategically complex; one’s optimal strategy depends on a variety of considerations regarding the auction design, and the other participants’ strategies. Thus, bidding-in or designing auctions is challenging, and the stakes are high. The first part of this course uses auction theory and its empirical experience to offer insights into how to make optimal decisions as bidders or designers of auctions in the key auction settings which include art, spectrum, electricity, natural-resources, and bond auctions.
The second part of the course deals with market design, where the central question is: how to allocate limited resources to interested parties without using money to improve efficiency, stability, and/or fairness of the allocation. Money is precluded from several allocation problems due to ethical or legal reasons. For example, one cannot use money while allocating human organs among patients in need of a transplant (e.g. Kidney donors to patients), or while allocating potential employees to jobs (e.g. new doctors to hospitals), or while allocating school children to schools, etc.
David Gale and Lloyd Shapley have led the way in providing algorithms to match parties that benefit from trading with each other. Alvin Roth has led the way in developing and applying algorithms to many real-world problems like Kidney exchange, doctor-hospital matching, etc. Real world applications throw up new challenges for market design, which require appropriate modifications. For example, how should one account for a priority list among those in need of a Kidney? How should one accommodate married candidates’ preferences for locating nearby while taking up a new job? The market design part of the course offers insights into the workings of existing markets, and into the key techniques for implementing a successful design that yields thickness, de-congestion, and safety in important real-world settings.
This course will shed light The objectives would be to develop an understanding of the following:
Optimal bidding strategies in some of the most important auction formats.
Incentives induced by popular market designs and matching protocols.
How to design auctions and markets to achieve goals like efficiency or revenue in a variety of important settings.
The course will use a mix of lectures, live experiments, and student-presentations.
Please note that since the readings will be quite challenging, the class shall primarily rely on the instructor’s class notes.
As part of the course, the students will be expected to
(1) Conduct an in-depth analysis of an auction or market of the group’s choosing.
(2) Deliver a presentation and final project report with their findings and consequent implications for business and/or government and/or customers.
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