SC&L SEMINAR SERIES :: Insights From a Model of Multi-Period Forward and Reverse Auctions
Industries with supply or demand affected by seasonal cycles or weather conditions, such as the pulp and paper industry (Haynes 1998) and the electricity industry (Burger 2004) hold spot market auctions that may allow temporary shifts in auction-market roles. For example, a supplier with excess timber to sell during a rainy, season-induced supply shortage can potentially sell it at a premium. The wet weather that causes supply shortages in timber gives few suppliers with excess timber the opportunity to initiate an auction, but there is little evidence that they take advantage of this opportunity. We compare the expected profit to the supplier and the expected surplus of the buyer when each participates in a sequential auction as a bidder, as an auction-initiator, or alternates between both roles. When there are numerous suppliers and few buyers, our models predict the conditions under which both suppliers and buyers prefer reverse auctions and under which suppliers prefer forward auctions and buyers prefer reverse auctions. In addition, both sides of the market prefer multiple auctions to a single auction although their preference functions differ revealing a threshold on the benefit of additional auctions.
- Workflow Status: Published
- Created By: Barbara Christopher
- Created: 10/08/2010
- Modified By: Fletcher Moore
- Modified: 10/07/2016