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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 At Twelfth International Workshop on Agent-Mediated Electronic Commerce (AMEC 2010), Canada. , pp. 29-42.

Record type: Conference or Workshop Item (Paper)

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).

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More information

Published date: 10 May 2010
Additional Information: Event Dates: 10 May 2010
Venue - Dates: Twelfth International Workshop on Agent-Mediated Electronic Commerce (AMEC 2010), Canada, 2010-05-10
Keywords: options, sequential auctions, multi-agent systems, bidding strategies, auction mechanisms
Organisations: Agents, Interactions & Complexity

Identifiers

Local EPrints ID: 270967
URI: http://eprints.soton.ac.uk/id/eprint/270967
PURE UUID: 9a9a38ac-e1fe-4a9a-87c8-516fb195c2ff

Catalogue record

Date deposited: 03 May 2010 10:47
Last modified: 18 Jul 2017 06:49

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Contributors

Author: Valentin Robu
Author: Ioannis Vetsikas
Author: Enrico Gerding
Author: Nick Jennings

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