Auction is a trading mechanism for selling scarce resource(s) of undetermined quality. It is based on a pair of rules, the allocation rule that determines which good is allocated to whom and the payment rule that defines the amount to be paid by the auction winner(s). Auctions main merit is that they provide a fast, easy, transparent, reliable and fair way to allocate goods, leaving the market to decide the price paid. They may be designed to maximize social welfare (efficient auctions) or/and seller's revenue (optimal auctions). Because of their advantages they have been in use for millennia. No surprise, the goods auctioned are extremely diverse and include almost anything: from fine pieces of art to fresh fish and from flowers to spectrum licenses. Even the Roman Empire was auctioned once!

There are many ways to classify the various auction mechanisms, such as single-unit if only one good is put up for sale or multi-unit if multiple units of a good are to be traded. Moreover, whether bids are made in public or submitted enclosed in sealed envelopes, the auction is said to be open or sealed respectively. When the auction's price is initially low and gradually incremented or high and decremented, the auction is classified as ascending or descending. A multi-object auction is combinatorial if placing bids for combinations of items is allowed or independent if a separate bid for each object put up for sale is placed and treated in an independent fashion from the auctioneer. If the auction is conducted in rounds, it is progressive, otherwise it is one-shot sealed bid. Depending on the payment rule, the auction is discriminatory if each auction winner is charged individually, while it is uniform if the same amount of money is paid by all for each unit of the good awarded.

The major auction formats are English, Dutch, 1st price sealed-bid, and Vickrey.


Most well-known cases of applying auctions as the proper mechanism to allocate goods include the FCC auction for spectrum in US, Australia and Europe, the various 3G spectrum licenses auctions, auctions for treasury bonds, electricity production/transmission and pollution emission rights. Auctioning radio spectrum also encourages technological and scientific progress since it encourages the deployment of the most efficient technologies, does not discourage market entry and forces the firms to express their actual needs. Last but not least, the revenue attained is generally high (e.g. the UK UMTS auction).

Our Work

The NES auction research team has thoroughly studied the pros and cons of the various auction mechanisms, their properties and applicability as well as the corresponding optimal bidding strategies. Our work mainly focuses on multi-unit and FCC-type auctions. We have developed an auction mechanism for bandwidth allocation over paths of a network (named MIDAS) and assessed its performance both theoretically and by means of an experimental testbed. This mechanism is innovative and based on using Multi-unit Independent Dutch AuctionS, one per link. Various original price variation policies have been designed and implemented, so that the network becomes a "balanced" bandwidth market. Software prototypes implementing and assessing experimentally MIDAS have been implemented in Java.

The team also has given emphasis on auctions for polyparametric SLAs. Auctioning traffic contracts that determine not just one but a set of parameters (e.g. mean rate, peak rate, packet delay and jitter) is rather complicated due to the complexity of winner determination. We have shown that a simple solution to the problem is using the effective bandwidth formula that provides a unidimensional mapping of the various traffic parameters. The amount of feedback provided to bidders regarding this formula so that they can maximize their profits and the incentive compatibility issue have been successfully addressed.

Another interesting issue that the team has been involved in is designing the proper auction for awarding e-resources, such as "slots" for advertisement banners to web sites pages, that may be customized according to users' preferences and interests. Since there may be overlaps among the various customers "interest groups" and the ads providers, awarding these slots in a fair and efficient way is not a simple issue. The approach followed here was to define a minimal unit of division of the customers. This was used to create non-overlapping customer groups, thus simplifying the problem of awarding slots to the various customer groups. For simplicity reasons, the sealed format was adopted for this auction. To be more descriptive, each bidder's single bid is internally broken to "sub-bids", each corresponding to a customer subgroup. The way this is done takes into account the size and competition for each subgroup. The various auctions are conducted on an increasing competition basis, so that higher social welfare and lower bidder charge is attained.

We are currently involved in designing auctions for electricity transmission and 2,5G/3G mobile network services. A list of active EU funded research projects, such as M3I enable the team to further advance its research on this field. We have also developed a variety of testbeds and software platforms for conducting, experimenting with, assessing and evaluating a variety of auction mechanisms.

Selected links

Agorics (Introduction on auctions, good for starters)
FCC page (Information on auctions conducted by FCC)
3G auctions (Information on European UMTS licenses auctions)
Cramton papers (Many interesting research papers by Cramton)