Optimal bidding strategies for simultaneous Vickrey auctions with perfect substitutes

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Description/Abstract

In this paper, we derive optimal bidding strategies for a global bidder who participates in multiple, simultaneous second-price auctions with perfect substitutes. We first consider a model where all other bidders are local and participate in a single auction. For this case, we prove that, assuming free disposal, the global bidder should always place non-zero bids in all available auctions, irrespective of the local bidders’ valuation distribution. Furthermore, for nondecreasing valuation distributions, we prove that the problem of finding the optimal bids reduces to two dimensions. These results hold both in the case where the number of local bidders is known and when this number is determined by a Poisson distribution. In addition, by combining analytical and simulation results, we demonstrate that similar results hold in the case of several global bidders, provided that the market consists of both global and local bidders. Finally, we address the efficiency of the overall market, and show that information about the number of local bidders is an important determinant for the way in which a global bidder affects efficiency.