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Reverse & Double Auctions

COMP315 Lectures

Normal Auction
one seller, multiple buyers.
Reverse Auction
multiple sellers, one buyer.
Double Auction
Multiple sellers, multiple buyers.

Reverse Auctions

Reverse auctions are the same as standard auctions however the sellers bid down against each-other.

Think about companies bidding to complete a government contract for the cheapest.

  • The price direction is reversed.
  • The sellers bid for the buyer.
  • Social welfare is maximised if the seller who values the item the least wins the auction.

Reverse English Auction

  1. Buyer sets a reserve price.
  2. Sellers can bid below the standing bid.
  3. Auction ends when no bidder is willing to lower the price or when time runs out.
  4. The lowest bidder wins.

Reverse Japanese Auction

  1. Buyer sets a reserve price.
  2. All potential sellers must announce their participation.
  3. Price decreases at predictable intervals.
  4. Winner is the last remaining seller once all other’s have dropped out.

Double Auctions

These auctions are often used for energy markets and therefore often trade in high value.

There is only one generally accepted method for a double auction:

  1. There are $n$ buyers $b_n$ and $n$ sellers $s_n$.

  2. You bid for a number of items and a price per item to be bought or sold.

    Suppose you decided on a price of £0. Then lots of buyers would be willing to pay but no seller would be willing to sell.

  • If we increase the price, the number of buyers will decrease and the number of sellers will increase.
  • If we decrease the opposite will happen.

We should aim between these prices and aim for maximum units sold.

Double Auction Theoretical Properties

There is no double auction that satisfies:

  • Truthfulness
  • Social Welfare

Alternative to Double Auctions

Some alternatives to double auctions are:

  • Multiple parallel auctions.
  • Multiple parallel reverse auctions.

This is often more understandable and is used in consumer facing applications.

This has the side-effect of being truthful and maximising social welfare for the buyers/sellers if you choose the appropriate model:

  • You can’t have both buyers and sellers being honest at the same time.