Flexibly Priced Options: A New Mechanism for Sequential Auctions with Complementary Goods


Robu, Valentin, Vetsikas, Ioannis, Gerding, Enrico and Jennings, Nick (2010) Flexibly Priced Options: A New Mechanism for Sequential Auctions with Complementary Goods. In, Twelfth International Workshop on Agent-Mediated Electronic Commerce (AMEC 2010), Toronto, Canada, , 29-42.

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Description/Abstract

In this paper we present a novel option pricing mechanism for reducing the exposure problem encountered by bidders with complementary valuations when participating in sequential, second-price auction markets. Existing option pricing models have two main drawbacks: they either apply a fixed exercise price, which may deter bidders with low valuations, thereby decreasing allocative efficiency, or options are offered for free, in which case bidders are less likely to exercise them, thereby reducing seller revenues. Our novel mechanism with flexibly priced options addresses these problems by calculating the exercise price as well as the option price based on the bids in an auction. For this novel setting we derive the optimal strategies for a bidding agent with complementary preferences. Furthermore, to compare our approach to existing ones, we derive, for the first time, the bidding strategies for a fixed price mechanism, in which exercise prices for options are fixed by the seller. Finally, we use these strategies to empirically evaluate the proposed option mechanism and compare it to existing ones, both in terms of the seller revenue and the social welfare. We show that our new mechanism achieves higher market efficiency, while still ensuring higher revenues for the seller than direct sale auctions (without options).

Item Type: Conference or Workshop Item (Paper)
Additional Information: Event Dates: 10 May 2010
Keywords: options, sequential auctions, multi-agent systems, bidding strategies, auction mechanisms
Divisions: Faculty of Physical Sciences and Engineering > Electronics and Computer Science > Agents, Interactions & Complexity
ePrint ID: 270967
Date Deposited: 03 May 2010 10:47
Last Modified: 27 Mar 2014 20:16
Further Information:Google Scholar
URI: http://eprints.soton.ac.uk/id/eprint/270967

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