Optimal Design Of English Auctions With Discrete Bid Levels


David, Esther, Rogers, Alex, Schiff, Jeremy, Kraus, Sarit, Rothkopf, Michael and Jennings, N. R. (2007) Optimal Design Of English Auctions With Discrete Bid Levels. ACM Transactions on Internet Technology, 7, (2), Article 12-(34 pages).

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Description/Abstract

This paper considers a form of ascending price English auction widely used in both live and online auctions. This discrete bid auction requires that the bidders submit bids at predetermined discrete bid levels, and thus, there exists a minimal increment by which the bid price may be raised. In contrast, the academic literature of optimal auction design deals almost solely with continuous bid auctions. As a result, there is little practical guidance as to how an auctioneer, seeking to maximize its revenue, should determine the number and value of these discrete bid levels, and it is this omission that is addressed here. To this end, a model of a discrete bid auction from the literature is considered, and an expression for the expected revenue of this auction is derived. This expression is used to determine both numerical and analytical solutions for the optimal bid levels, and uniform and exponential bidder’s valuation distributions are compared. Finally, the limiting case where the number of discrete bid levels is large is considered. An analytical expression for the distribution of the optimal discrete bid levels is derived, and an intuitive understanding of how this distribution maximizes the revenue of the auction is developed.

Item Type: Article
Keywords: discrete bids, English auction, optimal auction desig
Divisions: Faculty of Physical Sciences and Engineering > Electronics and Computer Science > Agents, Interactions & Complexity
ePrint ID: 261548
Date Deposited: 14 Nov 2005
Last Modified: 27 Mar 2014 20:04
Further Information:Google Scholar
ISI Citation Count:8
URI: http://eprints.soton.ac.uk/id/eprint/261548

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