Optimal Financially Constrained Bidding in Multiple Simultaneous Auctions

Dash, Rajdeep, Gerding, Enrico and Jennings, Nick (2008) Optimal Financially Constrained Bidding in Multiple Simultaneous Auctions. In, Negotiation, Auctions, and Market Engineering. Springer, pp. 190-199.

Record type: Book Section

Abstract

We consider optimal procedures for bidders participating in multiple simultaneous second-price auctions. Previous research has shown that, for such a setting, it is optimal to bid strictly positive in all available auctions, even if only a single item is required. In this paper, we investigate how the bidding strategy changes when the bidder is financially constrained such that its exposure (i.e. the sum of its bids) is limited. We prove (in the case of two auctions) that when the financial constraint is equal or less than the buyer’s valuation, it is typically optimal to participate in a single auction. We also find that the optimal strategy changes fundamentally if budget constraints are introduced. In particular, whereas without budget constraints in many cases the problem of finding the optimal strategy reduces to two dimensions, this is no longer the case if the bids are constrained. Finding the optimal policy thus becomes much more involved.

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