Bidding Strategy (Other Auctions)

COMP315 Lectures 2023-02-07

Sealed Bid Auction Strategy

You should bid:

• Slightly more than what you expect the highest other bid to be.

• $v$ - your value of the item.

  In this case you will make zero profit.

You can also play mind games to make your opponents think you have a lower value of the item. This way they will bid lower in response.

• Every bid below $v$ is rationalisable.

Second Bid Sealed Auction Strategy

You should:

• Bid your valuation $v$.

In this case you will pay the next valuation lower ($t$) than $v$ and you will make at least zero profit.

Japanese Auction Strategy

You should always drop out when the auction hits your value $v$.

Deterministic All Pay Sealed Bid Auction Strategy

• Any bid below the valuation $v$ is rationalisable.

With rational bidders the seller can expect to receive the value of the item in payouts, despite all paying:

• In reality most people overbid.

Deterministic All Pay English Auction Strategy

The dollar auction is the best known example of this type:

• The item to be sold is one dollar.

Assume a minimum increase of 40¢:

• It is rationalisable to bid infinitely, provided that the bid improves the marginal.

  The marginal is the difference in profit from the last bid.

Rationality doesn’t guarantee a good outcome. You can gain arbitrarily high losses in an auction of this type.

Non-deterministic All Pay Auction Strategy

The expected outcome in a lottery for all players, including the seller, is zero.

Generally this is not the case as the seller takes a profit by giving prizes worth less than the sum of the tickets.

In practice, some money can be made from irrationality.