1. Agent Based Models and Common Value Auctions B. Wade Brorsen

2. Agent based models (ABM) simulate the actions and interactions of autonomous agents to determine effects on the system as a whole.

3. 3 Agent-Based Model: Bottom-up Method – Carry out the experiments with programmed agents – Interactive agents with simple rules Initial condition Observed Market Equilibrium

4. Applications of ABM Biology Land Use Urban Planning Oligopoly Auctions

5. Contrast with Traditional Theory Fully Rational a.Maximize profit b.Maximize expected utility Boundedly Rational Do what worked last time

6. Game Theory Small number of players Industrial organization International trade Nash equilibrium

7. Oligopoly Models Cournot Bertrand Stackelberg

8. Auctions Private value Common value Affiliated value

9. Meyers (1988) Matagorda County rice auctions Bids increased as # buyers increased Winner’s curse Bid shading

10. Relevant Tools to Study Auctions Theoretical Human experiments Agent-based models

11. Agent Based Models Computerized agents Follow specific rules Simulation or optimization?

12. Stochastic Global Optimization Evolutionary Algorithms Genetic algorithms Particle swarm Random Restarts

13. 13 Market 1 particle 1 particle K Agent 1 Agent 2 Strategy 1 Local Best 1 Local Best K Market K Local Best 1 Local Best K Global Best Profit particle 1 particle K Select New strategy Select New strategy Strategy K

14. Convergence to Equilibrium

15. Software Many canned packages - Mostly land use We use Java Can be slow

16. Revisiting Mandatory Price Reporting Act of 1999 Using an Agent-Based Model

17. Objective Develop an agent-based common-value auction to determine expected effect of Livestock Mandatory Price Reporting Act on packer market power

18. MPR Literature Previous theoretical work disagrees Recent econometric work shows beef packers’ market power increased after MPR

19. Theoretical Framework Previous theoretical work follows Cournot theory Auction model is closer to how cattle are actually purchased

20. Auction Structure First-price common-value auction with a reserve price Common value for the packers is 0.5

21. Post MPR Results CategoryFull Noise Seller Reduced Noise Buyer Reduced Noise Average winning bid price0.020.110.06 Reserve price-0.31-0.08-0.43 Buyer 1 expected revenue0.170.100.20 Buyer 2 expected revenue0.160.100.18 Seller expected revenue0.010.06

22. Application to Cattle Sales Reducing either the seller’s or buyers’ uncertainty through USDA-AMS reports created by MPR benefits the seller