10: Different Auction Protocols Flashcards
What are auction protocols ?
They are rules for commercial transactions.
What are the types of interaction protocols ?
- Auction protocols
- Negotiation protocols
What type of auctions (sellers and buyers) are we discussing ?
One item from one seller but multiple buyers
Type of values ?
- Private value auctions: items which cannot be resold (cake, secret data)
- Common/public value: items which have common values and can be resold later
- Correlated value: items with both private and common values (paintings)
Concepts of auctions ?
- Protocols: rules for bidding rounds (termination conditions, selecting a winner, a price to be paid by a winner and others)
- Reserve price: min acceptable price for sale
- Open bids: known to everyone
- Sealed bids: privately submitted
Who are the actors/participants in an auction ?
- Bidder: a potential buyer who submits bids
- Valuation of a bidder: their estimate of an item’s worth (which might differ from their bid)
- Auctioneer: organiser who collects bids and follows a protocol to choose a winner at the end and payments of bidders
What is the English auction protocol and how does it work?
It is an ascending price or open cry auction.
The auctioneer may start at a reserve price and calls for bids. Buyers call out prices they wish to pay.
Each bid must be higher than the previous bid. The last bidder wins and pays the last bid.
What is the best strategy to win an English auction ?
It is to add a little more to a previous bid to always be ahead of other bidders, until the price reaches your valuation of an item.
So you are always trying to buy for a price lower than your valuation. This is a non-truthful protocol.
What is a non-truthful protocol ?
A non-truthful protocol is when your bids depend on actions of other bidders, not only on your true valuation.
What is the Japanese auction protocol and how does it work?
Similar to an ascending price auction as the English auction, but the auctioneer calls out prices, which are increasing incrementally from a reserve price (not permitting bidders to call out their prices).
Prices are even displayed and increase almost continuously, e.g. one dollar per second.
Bidders drop out when the price is too high (without a chance to return to the auction).
The last bidder wins at price of the last dropout (the second highest price that was offered).
What is the best strategy to win an Japanese auction ?
The best strategy is to stay while the displayed price is lower than your own valuation of an item.
This is an example of a truthful protocol.
What is a truthful protocol ?
This is an example of a truthful protocol when it is always best to act according to your true valuation, regardless of the others’ actions.
What is the Dutch auction protocol and how does it work?
It’s a descending price auction when the auctioneer calls out prices starting at a high price and continuously or incrementally descending.
When there is a buyer willing to buy at a current displayed price, they call out and pay this price.
Since one bid is enough, the Dutch auction is quicker than the English and Japanese auctions.
What is the best strategy to win a Dutch auction ?
The accepted bid is always the highest, so the Dutch auction is a first-price open auction.
The best strategy is to call out when the price is equal to or below your own valuation.
The Dutch protocol is not truthful, because bidding below your valuation can be beneficial.
