Japanese auction

Last updated

A Japanese auction [1] (also called ascending clock auction [2] ) is a dynamic auction format. It proceeds in the following way.

Contents

Strategies

Suppose a buyer believes that the value of the item is v. Then this buyer has a simple dominant strategy: stay in the arena as long as the displayed price is below v; exit the arena whenever the displayed price equals v. This means that the Japanese auction is a truthful mechanism: it is always best to act according to your true value, regardless of the others' values.

When all buyers play their dominant strategies, the outcome is:

Comparison to Vickrey auction

A Vickrey auction is a sealed-bid auction, where all buyers submit their bids in advance, the highest bidder wins and pays the second-highest bid. It is a truthful mechanism. At first glance, its outcome looks identical to the outcome of the Japanese auction. Moreover, the Vickrey auction is apparently much faster, since it does not require bidders to wait until the clock increases to the final price. However, the Japanese auction has several advantages that make it much more useful in practice. [2]

Comparison to English auction

An English auction is a dynamic "open outcry" auction. Here, the displayed price is increased by bidders shouting prices above the displayed price, rather than by the auctioneer's clock. At first glance, this seems equivalent to the Japanese auction: apparently, it is a dominant strategy for each buyer whose price is above the displayed price, to always bid the minimal allowed increment (e.g. one cent) above the displayed price. However, in practice, jump bidding is often observed: buyers increase the displayed price much more than the minimal allowed increment. Obviously, jump-bidding is not possible in a Japanese auction. This may be seen as either an advantage or a disadvantage of the Japanese auction format.

See also

The Japanese auction has similarities to the ante in Poker. [5]

Related Research Articles

Auction Process of offerings goods or services up for bid, and either selling to the highest bidder or buying from the lowest bidder

An auction is usually a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.

An online auction is an auction which is held over the internet. Like auctions in general, online auctions come in a variety of types like ascending English auctions, descending Dutch auctions, first-price sealed-bid, Vickrey auctions and others, which are sometimes not mutually exclusive.

In game theory, an asymmetric game where players have private information is said to be strategy-proof or strategyproof (SP) if it is a weakly-dominant strategy for every player to reveal his/her private information, i.e. given no information about what the others do, you fare best or at least not worse by being truthful.

A Vickrey auction is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961 though it had been used by stamp collectors since 1893. In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.

An English auction is an open-outcry ascending dynamic auction. It proceeds as follows.

In an auction, bid shading is the practice of a bidder placing a bid that is below what they believe a bid is worth.

A double auction is a process of buying and selling goods with multiple sellers and multiple buyers. Potential buyers submit their bids and potential sellers submit their ask prices to the market institution, and then the market institution chooses some price p that clears the market: all the sellers who asked less than p sell and all buyers who bid more than p buy at this price p. Buyers and sellers that bid or ask for exactly p are also included. A common example of a double auction is stock exchange.

Auction theory is an applied branch of economics which deals with how bidders act in auction markets and researches how the features of auction markets incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The conference of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues which can lead to market failure. The design of these rulesets encourages optimal bidding strategies among a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”

A multiunit auction is an auction in which several homogeneous items are sold. The units can be sold each at the same price or at different prices.

The revelation principle is a fundamental principle in mechanism design. It states that if a social choice function can be implemented by an arbitrary mechanism, then the same function can be implemented by an incentive-compatible-direct-mechanism with the same equilibrium outcome (payoffs).

A first-price sealed-bid auction (FPSBA) is a common type of auction. It is also known as blind auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest bidder pays the price that was submitted.

Revenue equivalence is a concept in auction theory that states that given certain conditions, any mechanism that results in the same outcomes also has the same expected revenue.

A Vickrey–Clarke–Groves (VCG) auction is a type of sealed-bid auction of multiple items. Bidders submit bids that report their valuations for the items, without knowing the bids of the other bidders. The auction system assigns the items in a socially optimal manner: it charges each individual the harm they cause to other bidders. It gives bidders an incentive to bid their true valuations, by ensuring that the optimal strategy for each bidder is to bid their true valuations of the items; it can be undermined by bidder collusion and in particular in some circumstances by a single bidder making multiple bids under different names. It is a generalization of a Vickrey auction for multiple items.

Market design is a practical methodology for creation of markets of certain properties, which is partially based on mechanism design. In some markets, prices may be used to induce the desired outcomes — these markets are the study of auction theory. In other markets, prices may not be used — these markets are the study of matching theory.

In mechanism design, a Vickrey–Clarke–Groves (VCG) mechanism is a generic truthful mechanism for achieving a socially-optimal solution. It is a generalization of a Vickrey–Clarke–Groves auction. A VCG auction performs a specific task: dividing items among people. A VCG mechanism is more general: it can be used to select any outcome out of a set of possible outcomes.

A Bayesian-optimal mechanism (BOM) is a mechanism in which the designer does not know the valuations of the agents for whom the mechanism is designed, but he knows that they are random variables and he knows the probability distribution of these variables.

A deferred-acceptance auction (DAA) is an auction in which the allocation is chosen by repeatedly rejecting the least attractive bids. It is a truthful mechanism with strategic properties that make it particularly suitable to complex auctions such as the radio spectrum reallocation auction.

A sequential auction is an auction in which several items are sold, one after the other, to the same group of potential buyers. In a sequential first-price auction (SAFP), each individual item is sold using a first price auction, while in a sequential second-price auction (SASP), each individual item is sold using a second price auction.

In auction theory, jump bidding is the practice of increasing the current price in an English auction, substantially more than the minimal allowed amount.

The Price of Anarchy (PoA) is a concept in game theory and mechanism design that measures how the social welfare of a system degrades due to selfish behavior of its agents. It has been studied extensively in various contexts, particularly in auctions.

References

  1. Schindler, J., 2003. Late bidding on the Internet. Working paper. University of Vienna. Archived at Archive.org
  2. 1 2 Milgrom, Paul; Segal, Ilya (2014). "Deferred-acceptance auctions and radio spectrum reallocation". Proceedings of the fifteenth ACM conference on Economics and computation - EC '14. p. 185. doi:10.1145/2600057.2602834. ISBN   9781450325653.
  3. This is not true for a Vickrey auction. Suppose the auctioneer in a Vickrey auction sees all the bids, and calculates the maximum bid . He can then secretly ask an ally to submit a bid with a value of , in order to increase his revenue. If a bidder suspects that the auctioneer acts like this, then being truthful is NOT a dominant strategy.
  4. Milgrom, Paul R.; Weber, Robert J. (1982). "A Theory of Auctions and Competitive Bidding". Econometrica. 50 (5): 1089. CiteSeerX   10.1.1.186.4633 . doi:10.2307/1911865. JSTOR   1911865.
  5. "Auction Types & Terms". Auctusdev.com. Archived from the original on 2013-01-17. Retrieved 2012-12-26.