----- Forwarded by Greg Woulfe/Enron Communications on 12/28/00 09:58 AM -----

	Chonawee Supatgiat@ENRON
	12/22/00 05:08 PM
		 
		 To: Stinson Gibner/HOU/ECT@ECT, Greg Woulfe/Enron Communications@Enron 
Communications
		 cc: 
		 Subject: Combinatorial Auction

Stinson and Greg,

I have read the paper "Combinatorial Auction with Multiple Winners for 
Universal Service" from Richard Steinberg and Frank Kelly. They propose a 
combinatorial auction which is an auction for multiple items that allows 
bidders to realize their synergies on combinations of items. The 
combinatorial auction is appropriated for bandwidth commodity because most 
bidders in the market have synergies on the combination of items. For 
example, if we want to get bandwidth between Boston and DC, we would bid for 
Boston-NY and NY-DC. It will be valuable to us only if we won both links. If 
we won only one link, it will be useless.

In the paper, they propose the auctioning method but their method has not 
been tested or validated yet. I have not checked their proposition 
mathematically but their paper was published in Management Science so I think 
it should be all right. I will look at it in more details and let you know. 
Anyhow, there are also other combinatorial auctions that are actually used, 
for example, the Alberta government's PPA auction that Enron Canada was 
participated 3-4 months ago.

Based on our long position on bandwidth, Auction and Exchange might be a good 
channel to dispose our unused (or unsold) bandwidth. I know there is not much 
demand in the market. But if we open a combinatorial auction or exchange, we 
might be able to increase our market share. (by taking demand from our 
competitors). I believe, at the moment, there are no bandwidth exchanges that 
allow "combinatorial" bids. If we are the first one to do it, we might 
improve our sale channel and gain some market share. (Note: Auction -> one 
seller and many buyers: Exchange -> many sellers and many buyers.)

Moreover, I think auctioning the unsold bandwidth will not hurt us because we 
cannot sell them anyway. In addition, we ourselves can be a dummy bidder in 
the system and bid in the auction. If the current wining bid is too low, we 
can just over-bid it and keep the product. This way, we can indirectly put a 
reserve price on the products.

Let's meet sometime in the first week of January.
-Chonawee