D.C. Auction Design Malpractice?

Josh Wright —  14 August 2011

Zipcar apparently has been the exclusive user of the 84 or so parking spaces D.C. allocates to car-sharing companies until very recently when the District’s DOT put them up for auction:

The city’s department of transportation offers what are now 84 curbside parking spaces to car-sharing companies, which had up until recently been all Zipcar’s. The long-established company enjoyed their free use for years and last year began paying $200 a space. It’s been the only car-sharing service at all in the District since 2007. In 2011, DDOT announced they wanted to open up the District’s car-sharing market by letting companies bid on the parking spaces, with a minimum bidding price of $3,600 per space. Well, bid they did. After interest from Hertz, Daimler, and Enterprise in addition to Zipcar, three of those four companies bid on the District’s parking spots, according to DDOT spokesman John Lisle earlier this month. He couldn’t tell me more then.

The big news is that Zipcar lost a significant fraction of these spaces:

But word is now in — Zipcar went from having all of what were once 86 curbside parking spots to what’s looking like 12 of the 84 that exist now, according to Zipcar consultant John Williams. You hear that? 12. Zipcar only received a dozen of the 84 spaces that have been allocated, it seems, with a slight possibility they’ll be able to increase the number to 14 due to the District’s wishes that all the car-sharing companies operate in all the wards. D.C.’s car-sharing market has just transformed in a dramatic way and more than I ever would have imagined.

But the economic news is what the story reveals about the auction mechanism implemented by the DDOT!

Multiple companies apparently bid the same amount for the spaces, Williams told me, and this morning the car-sharing companies literally drew straws at DDOT to determine how the spaces will be divided. Can you imagine the sight? They actually drew straws!

So all of the firms bid the minimum.  Strategic?  Collusive?  Coincidence?  More importantly, why wouldn’t the DDOT turn to an English auction mechanism with all of the tied bidders in the room?  Well, there’s a rule of course.  Details of the auction are here; tie-breaking rules (yes, drawing lots) are here (see Rule 1543.3).

HT: Steve Salop.

2 responses to D.C. Auction Design Malpractice?

  1. 

    From the information in your write-up, the minimum was pretty high. Maybe the DDOT was just happy to have anyone match their asking price.

  2. 

    If they were colluding, then an open auction wouldn’t likely resolve any ties–they’d have to do an immediate sealed bid to prevent easy continued collusion.

    Also, if they all bid the minimum, doesn’t that mean the minimum was overpriced and the companies bid the minimum just to be able to “play”?