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Using Priced Options to Solve the Exposure Problem in Sequential Auctions

Using Priced Options to Solve the Exposure Problem in Sequential Auctions
Using Priced Options to Solve the Exposure Problem in Sequential Auctions
We propose a priced options model for solving the exposure problem of bidders with valuation synergies participating in a sequence of online auctions. We consider a setting in which complementary-valued items are offered sequentially by different sellers, who have the choice of either selling their item directly or through a priced option. In our model, the seller fixes the exercise price for this option, and then sells it through a first-price auction. We analyze this model from a decision-theoretic perspective and we show, for a setting where the competition is formed by local bidders (which desire a single item), that using options can increase the expected profit for both sides. Furthermore, we derive the equations that provide minimum and maximum bounds between which the bids of the synergy buyer are expected to fall, in order for both sides of the market to have an incentive to use the options mechanism. Next, we perform an experimental analysis of a market in which multiple synergy buyers are active simultaneously. We show that, despite the extra competition, some synergy buyers may benefit, because sellers are forced to set their exercise prices for options at levels which encourage participation of all buyers.
1533-5399
Robu, Valentin
36b30550-208e-48d4-8f0e-8ff6976cf566
Mous, Lonneke
b688fb36-0bae-41ad-9385-6aa096afe210
La Poutre, Han
fe00ea11-a0e9-40a3-b65c-efbda2d5d966
Robu, Valentin
36b30550-208e-48d4-8f0e-8ff6976cf566
Mous, Lonneke
b688fb36-0bae-41ad-9385-6aa096afe210
La Poutre, Han
fe00ea11-a0e9-40a3-b65c-efbda2d5d966

Robu, Valentin, Mous, Lonneke and La Poutre, Han (2012) Using Priced Options to Solve the Exposure Problem in Sequential Auctions. ACM Transactions on Internet Technology. (In Press)

Record type: Article

Abstract

We propose a priced options model for solving the exposure problem of bidders with valuation synergies participating in a sequence of online auctions. We consider a setting in which complementary-valued items are offered sequentially by different sellers, who have the choice of either selling their item directly or through a priced option. In our model, the seller fixes the exercise price for this option, and then sells it through a first-price auction. We analyze this model from a decision-theoretic perspective and we show, for a setting where the competition is formed by local bidders (which desire a single item), that using options can increase the expected profit for both sides. Furthermore, we derive the equations that provide minimum and maximum bounds between which the bids of the synergy buyer are expected to fall, in order for both sides of the market to have an incentive to use the options mechanism. Next, we perform an experimental analysis of a market in which multiple synergy buyers are active simultaneously. We show that, despite the extra competition, some synergy buyers may benefit, because sellers are forced to set their exercise prices for options at levels which encourage participation of all buyers.

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PricedOptionsRobuMousLaPoutre2012.pdf - Author's Original
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More information

Accepted/In Press date: 31 July 2012
Organisations: Agents, Interactions & Complexity

Identifiers

Local EPrints ID: 341794
URI: http://eprints.soton.ac.uk/id/eprint/341794
ISSN: 1533-5399
PURE UUID: 2ca9aca1-86ac-40fc-bacb-b0c989931a88

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Date deposited: 03 Aug 2012 20:08
Last modified: 14 Mar 2024 11:44

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Contributors

Author: Valentin Robu
Author: Lonneke Mous
Author: Han La Poutre

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