Auctions & Negotiations

COMP315 Lectures 2023-02-03

We can derive how much an item is worth in commerce by using the following methods:

	One Buyer	Multiple Buyers
One Seller	Negotiation	Auction
Multiple Sellers	Reverse Auction	Market/Double Auction

Auction Types & Strategy

There are several types of auction that are available:

English Auction

1. Auctioneer announces an initial standing bid (often the reserve price).

2. Each bidder may increase the standing bid by calling out a higher price.

   Usually there is a minimum increase.

3. Bidding end at a specified time, or when no one wants to increase the standing bid.
4. Item is sold to the highest bidder, at the price they bid.

Japanese Auction

1. All bidders must announce their entry into the auction.
2. The auctioneer announces an initial price.
3. The price increases at a set rate (e.g. £1 per 5 seconds).
4. Bidders can leave the auction at any time. Once you leave, you can’t re-enter.
5. This continues until only one buyer is left.
6. The item is sold to the last remaining bidder, at the price the last other bidder left.

Dutch Auction

Similar to Japanese auctions, except the price decreases over time.

1. The price starts high.
2. The price decreases over time.
3. At any time a bidder can pay the current price.
4. The auction ends once the first bid is made.

Sealed-bid Auction

First Price

Bids are made in secret:

1. Every bidder writes down their bid and submits it i a sealed envelope.
2. Once all bids are in, the auctioneer reads all the bids.
3. The item is sold to the highest bidder.

Second Price

The is the same as first price except:

• The item is sold to the highest bidder, for the price of the second highest bid.

All-pay Auction

This type is rarely used in practice.

Deterministic

1. Complete an English or sealed bid auction.
2. Highest bidder wins.
3. Every bidder must pay their bid regardless of whether they win.

Non-deterministic

1. Complete an English or sealed bid auction.
2. Winner is chosen randomly, weighted by their bid.
3. Every bidder must pay their bid, regardless of whether they win.

This is also known as a lottery.

Other Auction Types

There are also other types of auction for selling multiple copies of an item:

• Generalised first price auction:
  • Sell multiple copies of an item, one to each buyer.
  • Prices may differ per buyer.

  e.g. selling 500 tickets to the 500 highest bidders.

• French Auction:

  • Sell multiple copes of an item with bids made as:

    I bid for $n$ items at price $p$.

  • Orders are fulfilled from highest to lowest price per item.

• Single price auction:
  • Sell multiple copies of an item. Price is the same for all buyers.
  • Orders are fulfilled from highest to lowest bidder.
  • The price is chosen by the lowest bidder in the set.