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Billions and Billions Sourced: Lessons Learned Building eMarkets

Billions and Billions Sourced: Lessons Learned Building eMarkets. Robert T. Monroe Tepper School of Business Carnegie Mellon University October 28, 2004. Introduction. Market Making is an art as well as a science This talk focuses on the art of market making

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Billions and Billions Sourced: Lessons Learned Building eMarkets

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  1. Billions and Billions Sourced: Lessons Learned Building eMarkets Robert T. Monroe Tepper School of Business Carnegie Mellon University October 28, 2004

  2. Introduction • Market Making is an art as well as a science • This talk focuses on the art of market making • Specifically in reverse auctions for sourcing Economist General’s Warning: This talk consists of conjecture, opinion, and anecdotes. The rigor you are probably used to finding in talks of this nature is likely to be notably absent. You have been warned.

  3. Needs Feasibility Contracts Market Conditions Identify Opportunities CreateRFQ Recruit Suppliers Auction Evaluate Bids Award Market Making Process What How Many When Where Specs Drawings T & C’s Lotting Commoditize! Auction format Distribute Iterate Identify Qualify Evaluate Inform Recruit Convince Compel Iterate Game Day Negotiate Real-Time competition Scenarios Create Evaluate Iterate Audits Due Diligence Select Winners Communicate award Sign contracts

  4. Ceiling Bid Price Reserve Time Bidder A Bidder B Scheduled Closing Time Actual Closing Time Overtime Intervals Bidder C Bidder D (incumbent) Bidding Dynamics: Typical BidGraph

  5. Formats Single bidder input English Dutch Index Transformation Multiple bidder inputs Total Cost/Multivariate NPV Combinatorial Number of rounds Feedback Unique/generic bidder ID All bid prices Rank only Rank plus lead price Government rules Lot Opening and Closing Overtimes/no overtimes Ranks that trigger overtimes Contingent staggered Parallel Configuring Auctions The following parameters have proven useful in configuring auctions

  6. Auction Design Heuristics • Simplify, simplify, simplify • Human cognition is more limiting than algorithmic complexity • One factor easy, Many factors hard • Let the bidder know what they must do to win • Much harder with combinatorial auctions • Confusing and/or frustrating bidders is bad… • Select auction format and parameters wisely

  7. Key Ideas • Market Making is an art as well as a science • The science of auctions is important … • … but the effort prior to the auction generally determines its success • Simplify, simplify, simplify

  8. Thanks! Feel free to contact me for further discussion Robert T. Monroe Tepper School of Business Carnegie Mellon University 412-268-5744 bmonroe@cmu.edu

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