Network Procurement Auctions Thomas Greve and Michael G. Pollitt (
[email protected] and
[email protected] ) Barcelona 3 February 2015
www.eprg.group.cam.ac.uk
Bus tender Route 78
Route 77 Remember
Route 5A Source: Movia (2014)
2
www.eprg.group.cam.ac.uk
Alternative
Route 77
Source: Movia (2014)
3
www.eprg.group.cam.ac.uk
Offshore wind tender Link A Remember
Link B
Source: National Grid (2011)
4
www.eprg.group.cam.ac.uk
Alternative Link A
Source: National Grid (2011)
5
www.eprg.group.cam.ac.uk
Issues 1. In most network asset procurement processes, network configurations are predefined by the auctioneers. 2. Bidders are not allowed to propose (and bid to build) own suggested/different network configurations - one might ask if the predefined configuration is the optimal configuration.
3. Bidders are not allowed to submit bids on a group of network links (i.e. submit a “package” bid) - the bidders cannot gain from synergies between links.
6
www.eprg.group.cam.ac.uk
Research questions Question: • Is it possible to design an auction where bidders can propose and build own suggested/different network configurations and where bidding for packages is a possibility? • Can we get the optimal network? • How to reduce the costs? The environment: • The government/regulator is unsure about: – Is the pre-defined configuration the optimal configuration. – Can we reduce the costs.
7
www.eprg.group.cam.ac.uk
Literature • Amaral et al. (2009): • Study the bus tendering models of London and France. • The model used in London is a package auction (not a package clock auction) which allows bidders to submit bids on any number of routes and route packages. • However, do not discuss the case where bidders might propose different network configurations. The routes are pre-defined by the auctioneer.
• Transport for London (2013): • Informs the bidders that alternative configurations may be suggested. However, the auction is a so-called “beauty contest” (highly subjective). • Our auction contains a block structure where the bidders’ suggestions for alternative configurations are part of the auction itself (purely objective criterion).
8
www.eprg.group.cam.ac.uk
Contribution Contribution: • Propose a block structure together with a package auction where bidders can propose and build own suggested/different network configurations and where bidding for packages is a possibility. What we do: 1. We divide a procurement area, and therefore objects, up in blocks of approximately equal value which bidders can combine to suggest own network configurations. 2. We use the package clock auction (as used in telecom spectrum auctions) to allocate the objects in such a way as to allow bidders to combine blocks and submit package bids.
3. We use an authority suggested network configuration as a reserve configuration which secures that the authority at least gets this reserve configuration and the related network cost/transfer value (we have a maximum cost/transfer value). 9
www.eprg.group.cam.ac.uk
Example of 2.5 GHz auction in Denmark (same model used for 2.6 GHz band and 2010 MHz band in UK)
Source: DotEcon and Analysys Mason (2009)
10
www.eprg.group.cam.ac.uk
Package Clock Auction
Source: National IT and Telecom Agency (2010)
11
www.eprg.group.cam.ac.uk
A predefined network
12
www.eprg.group.cam.ac.uk
A lot structure
13
www.eprg.group.cam.ac.uk
Two potential configurations - bids Bidder 1’s submitted bid
Bidder 2’s submitted bid
14
www.eprg.group.cam.ac.uk
A predefined network
Source: National Grid (2011)
15
www.eprg.group.cam.ac.uk
A lot structure
16
www.eprg.group.cam.ac.uk
Possible bidding strategies • One link with one connection point. • Two links and one connection point.
• All connection points. • All links.
• Three links as one whole link. • The whole “figure”, for example, connection points and all links.
17
www.eprg.group.cam.ac.uk
Conclusion • Bidders can propose and build own suggested/different network configurations.
• Bidders can submit bids on packages to benefit from synergies. • If the reserve configuration is not the optimal configuration, the market will tell us so and suggest alternative configurations.
• Bidders can get the most desired network. • The authorities get at least their own suggested configuration and related network cost/transfer value. • Our set-up allows the market to give us (maybe) optimality and (greater) efficiency. • Can be tested on part of a network.
18
www.eprg.group.cam.ac.uk
Thank you
19
www.eprg.group.cam.ac.uk
References •
• • •
•
Amaral M, Saussier S, Yvrander-Billon A (2009) Auction procedures and competition in public services: the case of urban public transport in France and London. Utilities Policy 17(2):166-175. Movia (2014), website: http://www.moviatrafik.dk/dinrejse/kort/Pages/Kort.aspx. National Grid (2011), “Offshore Development Information Statement”, London: National Grid. National IT and Telecom Agency (2010), tender document. Available at: http://www.itst.dk/frekvenser-og-udstyr/auktioner-ogudbud/tidligere-auktioner-ogudbud/2-5-ghz-auktion/filarkiv-2-5-ghz-auktion/Informationsmemorandum.pdf. Transport of London (2013) London’s Bus Contracting and Tendering Process. http://www.tfl.gov.uk/tfl/businessandpartners/buses/tenderresults/lbsl-tendering-andcontracting-feb-09.pdf.
20
www.eprg.group.cam.ac.uk
