Qualitative One-to-Many Multi-Issue Negotiation: Approximating the QVA

When there is one buyer interested in obtaining a service from one of a set of sellers, multi-attribute or multi-issue auctions can ensure an allocation that is efficient. Even when there is no transferable utility (e.g., money), a recent qualitative version of the Vickrey auction may be used, the QVA, to obtain a Pareto-efficient outcome where the best seller wins. However, auctions generally require that the preferences of at least one party participating in the auction are publicly known, while often making this information public is costly, undesirable, or even impossible. It would therefore be useful to have a method that does not impose such a requirement, but is still able to approximate the outcome of such an auction. The main question addressed here is whether the Pareto-efficient best-seller outcome in multi-issue settings without transferable utility (such as determined by the QVA) can be reasonably approximated by multi-bilateral closed negotiation between a buyer and multiple sellers. In these closed negotiations parties do not reveal their preferences explicitly, but make alternating offers. The main idea is to have multiple rounds of such negotiations. We study three different variants of such a protocol: one that restricts the set of allowed offers for both the buyer and the seller, one where the winning offer is announced after every round, and one where the sellers are only told whether they have won or not after every round. It is shown experimentally that this protocol enables agents that can learn preferences to obtain agreements that approximate the Pareto-efficient best-seller outcome as defined by the auction mechanism. We also show that the strategy that exploits such a learning capability in negotiation is robust against and dominates a Zero Intelligence strategy. It thus follows that the requirement to publicly announce preferences can be removed when negotiating parties are equipped with the proper learning capabilities and negotiate using the proposed multi-round multi-bilateral negotiation protocol.     

Traders’ Subjective Appraisals: Comparison of Negotiations and Auctions

ABSTRACT

The assessments of business trade often involve economic and relational concerns. They may become more challenging when our understanding of the impacts of trading mechanisms is still limited. The current experimental study compares two generic trading mechanisms, namely, multibilateral multi-issue negotiations and multicriteria auctions. By examining economic measures and subjective appraisals in controlled exchange episodes, the study shows some subtle relationships between mechanism use, substantive outcomes, and subjective appraisals. While use of negotiations versus auctions did not reveal significant differences on economic measures, traders are strongly influenced by the gain-or-loss contingency. When they win a contract, their subjective appraisals are heavily influenced by their achieved substantive outcomes. When they do not win a contract, they feel auctions are better than negotiations. The results confirm the assessments of business trade that rely solely on substantive measures are not sufficient.     

A Transaction Utility Approach for Bidding in Second-Price Auctions

In both the Vickrey and eBay auctions, bidding the reservation price is the optimal strategy within the conventional utility framework. However, in practice, buyers tend to bid less than their reservation prices, and bid multiple times, thus increase their bids, in the course of an auction. In this paper, we show that both underbidding and multiple bidding behaviors can be consistent with utility maximization, if buyer's utility incorporates a transaction utility (reference price dependent) component. Transaction utility is based on the difference between the buyer's reference price and actual price paid; it captures the perceived value of the deal. More specifically, we show that the optimal bid is lower than the reservation price, but higher than the reference price. Furthermore, buyer may re-bid (above the prior optimal level) if the reference price is revised upon observing a higher current price.     

Competition between auctions

Even though auctions are capturing an increasing share of commerce, they are typically treated in the theoretical economics literature as isolated. That is, an auction is typically treated as a single seller facing multiple buyers or as a single buyer facing multiple sellers. In this paper, we review the state of the art of competition between auctions. We consider three different types of competition: competition between auctions, competition between formats, and competition between auctioneers vying for auction traffic. We highlight the newest experimental, statistical, and analytical methods in the analysis of competition between auctions.     

Bidder motives in cause-related auctions

We study cause-related auctions where a percentage of the dynamically determined purchase price of an item is donated to charity. Little is known about the effectiveness of such auctions. Bidders who value donations to charity have an incentive to bid more aggressively in such auctions. Regardless of whether they win or not, these bidders can significantly affect prices. The purpose of this paper is to study bidders' willingness to pay a premium in charity auctions and the drivers that affect the charity premium. We use a carefully designed field experiment involving simultaneous pairs of auctions that are identical in all respects but percentage of the proceeds donated to charity. This design gives us the ability to look at bidder choice among auctions based on charitable considerations. We use a mixture model approach to allow for different types of individual preferences. We find that individuals fall into three segments: two altruistic segments and a selfish segment. The altruistic segments, which drive up the charity premium, can be classified as warm glow bidders who derive pleasure from the act of giving and other-regarding bidders who give for selfless reasons. Results show that the difference in donation percentages is the major factor influencing the charitable premium. However, bidders differ considerably in their responses to donation percentages. While other-regarding bidders tend to seek auctions where a greater percentage of revenue is donated to charity, warm glow bidders only contribute when the charity premium is sufficiently low. Thus, managers should focus their marketing efforts on appealing to these different segments, depending on the percentage donated to charity.     

The impact of jump bidding in online auctions

This paper reports findings of two field studies, conducted on a local online auction website, that compare bidding strategies in charity and non-charity auctions, focusing on the extent of jump bidding at different stages of auctions. Results indicate that jump bidding is negatively correlated with bidder entry and positively associated with ending prices. These correlations are greatest during the beginning stage of auctions and are substantially larger for charity auctions than for non-charity auctions. Additionally, early-stage jump bidding occurred more often in charity auctions (consistent with bidders trying to drive up prices in charity auctions), ending-stage jump bidding was more frequent in non-charity auctions (possibly used strategically to win the auction). Further, frivolous products tended to sell at a higher proportion of retail value in charity auctions, providing a replication of the results of previous researchers but in a field setting.     

An Empirical Analysis of Bidding Fees in Name-your-own-price Auctions

Interactive pricing mechanisms integrate customers into the price-setting process by letting them submit bids. Name-your-own-price auctions are such an interactive pricing mechanism, where buyers' bids denote the final price of a product or service in case they surpass a secret threshold price set by the seller. If buyers are given the flexibility to bid repeatedly, they might try to incrementally bid up to the threshold. In this case, charging fees for the option to place additional bids could generate extra revenue and reduce incremental bidding behavior. Based on an economic model of consumer bidding behavior in name-your-own-price auctions and two empirical studies, we analytically and empirically investigate the effects bidding fees have on buyers' bidding behavior. Moreover, we analyze the impact of bidding fees on seller revenue and profit based on our empirical results.     

Mergers in Sealed versus Oral Auctions

In this paper, we study mergers in oral or second-price auctions and compare them to mergers in sealed-bid or first-price auctions. We use an adaptation of the logit qualitative choice model to characterize the underlying bidder value distributions. In second-price auctions, this model has a closed-form relationship between winning bids (prices) and the probabilities of winning (shares), and this relationship gives rise to a Herfindahl-like formula that predicts merger effects. We compare mergers in second-price auctions to mergers in first-price auctions. Despite their differences, sealed-bid merger effects are predicted by the oral Herfindahl-like formula.The source of this curious similarity is not apparent.     

A comparison of different pay-per-bid auction formats

Pay-per-bid auctions are a popular new type of Internet auction that is unique because a fee is charged for each bid that is placed. This paper uses a theoretical model and three large empirical data sets with 44,614 ascending and 1,460 descending pay-per-bid auctions to compare the economic effects of different pay-per-bid auction formats, such as different price increments and ascending versus descending auctions. The theoretical model suggests revenue equivalence between different price increments and descending and ascending auctions. The empirical results, however, refute the theoretical predictions: ascending auctions with smaller price increments yield, on average, higher revenues per auction than ascending auctions with higher price increments, but their revenues vary much more strongly. On average, ascending auctions yield higher revenues per auction than descending auctions, but results differ strongly across product categories. Additionally, revenues per ascending auction also vary much more strongly.     

The Inefficiency of First and Second Price Auctions in Dynamic Stochastic Environments

First and second price auctions are optimal mechanisms for resource allocation in many situations and are used widely. However, unlike the static once-and-for-all situations for which auctions are efficient, in dynamic stochastic environments these standard auctions cannot necessarily support optimal allocations. The potential inefficiency of auctions is demonstrated by example. A computer server is modeled as a non-interruptible M/M/1 system, with heterogeneous users. The optimal allocation of jobs is derived, and it is shown that this allocation cannot be supported as either a first-price or a second-price auction equilibrium.     

Auction Fever! How Time Pressure and Social Competition Affect Bidders’ Arousal and Bids in Retail Auctions

Auction sites on the Internet frequently put bidders under time pressure or highlight the social competition that is inherent to auctions. Both aspects are believed to elicit an exciting shopping experience, which may culminate in auction fever. In two laboratory experiments, we investigate the process of auction fever in retail auctions and demonstrate when and how auction fever affects bidding behavior. In contrast to previous studies, we employ physiological measurements as an objective and continuous assessment of bidders’ arousal in addition to a subjective assessment of bidders’ emotions through psychometric scales. Moreover, we explicitly study the interaction of time pressure and social competition on arousal and bids. We find that bidders’ arousal is increased in high time pressure auctions and that this leads to higher bids in ascending auctions—but only when bidders compete with human opponents. Thus, social competition is the actual driver underlying the auction fever phenomenon. Furthermore, we show that the “joy of winning” is significantly stronger than the “frustration of losing” in ascending auctions. Finally, we discuss the implications of our findings for the design of retail auctions.     

Strategic Bidding for Multiple Units in Simultaneous and Sequential Auctions

A buyer in an electronic marketplace may be interested in buying a bundle of items, where any one item in the bundle may not be of particular interest. The emergence of online auctions allow such users to obtain bundles by bidding on different simultaneous or sequentially run auctions. Because the number of auctions and the number of combinations to form the bundles may be large, the bundle bidding problem becomes intractable and the user is likely to make sub-optimal decision given time constraints and information overload. We believe that an automated agent that takes user preferences and budgetary constraints and can strategically bid on behalf of a user can significantly enhance user profit and satisfaction. Our first step to developing such an agent is to consider bundles containing many units of a single item to be bought from auctions that sell only multiple units of one item type. We assume that users obtain goods over several days. Expectations of auctions and their outcome in the future allow the agent to bid strategically on currently open auctions. We present an expected utility based strategy to decide how many items to bid for in the current auctions, and the maximum price to bid for each item. We evaluate our proposed strategy in different configurations by varying the number of items sold per auction, number of concurrently running auctions, expected closing prices, etc. We simulate several multiple unit English auctions per day, over multiple days, where most of the bidders bid their true utilities drawn from a distribution. The strategic bidding agent has knowledge of this distribution and uses it to determine its bids. A strategic agent who looks farther ahead into the future produces larger returns when there are few strategic bidders. We also evaluate the effect of risk attitudes on the relative performance of the bidders.     

A Network Bidder Behavior Model in Online Auctions: A Case of Fine Art Auctions

The marketing literature provides a solid understanding of auctions regarding final sales prices and many aspects of the processes that unfold to result in those outcomes. This research complements those perspectives by first presenting a new bidder behavior model that shows the role of emergent network ties among bidders on the auction outcome. Dyadic ties are identified as the bid and counter-bid patterns of interactions between bidders that unfold throughout the duration of an auction. These structures are modeled using network analyses, which enables: (1) a richer understanding of detailed auction processes, both within auctions and across auctions of multiple lots, (2) a mapping of the processes to the forecast of prices and the trajectory toward final sales prices, (3) the clear and early identification of key bidders who are influential to the bidding action and who impact final auction sales prices, and (4) the results clearly show that the network exchange patterns are significant and contribute to an understanding of auction processes and outcomes above and beyond simple economic predictors such as the number of bids or bidders or the bidders’ economic status. We conclude by providing some managerial implications for online auction houses and bidders.     

Optimization in electronic markets: examples in combinatorial auctions

Combinatorial auctions provide an important tool for mechanism design in multi-agent systems. When implemented they require to solve combinatorial optimization problems such as set packing and partitioning problems. We present in this paper an analysis of the complexity of the problem to assign bids to bidders in combinatorial auctions. We show that the case of identical assets can be solved in polynomial time. The case of non-identical assets is in its general version NP-hard. Extra structure, like a complete ordering of assets, or mild side conditions make the problem solvable. Finally, we present an algorithm to solve small and medium sized instances in a limited time using standard software.     

Experts and Amateurs: The Role of Experience in Internet Auctions

The use of auctions as a pricing mechanism has grown dramatically over the last few years. The introduction of electronic auctions has significantly widened the pool of consumers who participate in auctions and increased the number of companies attempting to sell their products in an auction format. Previous empirical research on auctions has focused almost exclusively on the behavior of professional bidders in high stakes common value auctions or the behavior of students in laboratory experiments. We collect data on a large number of electronic auctions, across four product categories, to explore the behavior of consumers bidding in a real marketplace. In particular, we focus on the role experience plays in their bidding behavior to uncover whether consumer learning drives the bidding process towards outcomes described in the theoretical literature on auctions. We find that experience does indeed lead to behavior which is more consistent with theory although the proportion of experienced bidders who behave in a manner inconsistent with theory remains quite large.     

Product classifications,consumer characteristics,and patronage preference for online auction

An important unanswered question in the area of Internet auctions is what dynamics influences consumer preferences for shopping on these online auctions. Two key aspects of studying what sells on the Internet auctions are (a) the characteristics of products to be purchased and (b) consumer characteristics. This research focuses on the relationship between product purchase preference, prior experience, and socioeconomic characteristics for the online auction participants. It uses product classification theory rooted in information economics and marketing. The study results are based on a US national sample of online auction participants. The findings suggest that product class affects online auction patronage, yet socioeconomic characteristics may not be as influential as once perceived. The online merchants can benefit from the inquiry to improve auctions for search, experience, and credence goods. The five key contributions of the findings add value to the theory and practice of consumer behavior.     

Ascending Combinatorial Auctions with Risk Averse Bidders

Ascending combinatorial auctions are being used in an increasing number of spectrum sales worldwide, as well as in other multi-item markets in procurement and logistics. Much research has focused on pricing and payment rules in such ascending auctions. However, recent game-theoretical research has shown that such auctions can even lead to inefficient perfect Bayesian equilibria with risk-neutral bidders. There is a fundamental free-rider problem without a simple solution, raising the question whether ascending combinatorial auctions can be expected to be efficient in the field. Risk aversion is arguably a significant driver of bidding behavior in high-stakes auctions. We analyze the impact of risk aversion on equilibrium bidding strategies and efficiency in a threshold problem with one global and several local bidders. Due to the underlying free-rider problem, the impact of risk-aversion on equilibrium bidding strategies of local bidders is not obvious. We characterize the necessary and sufficient conditions for the perfect Bayesian equilibria of the ascending auction mechanism to have the local bidders to drop at the reserve price. Interestingly, in spite of the free-riding opportunities of local bidders, risk-aversion reduces the scope of the non-bidding equilibrium. The results help explain the high efficiency of ascending combinatorial auctions observed in the lab.     

Competition,Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations

The paper discusses experiments aimed at comparing multi-attribute reverse auctions and multi-bilateral negotiations for procuring goods with multiple attributes. Both exchange mechanisms involve a buyer purchasing from one of several sellers. Two types of negotiations are considered: verifiable and non-verifiable. They differ in the sellers’ knowledge of the current best offer on the table; in verifiable negotiations the best offer is automatically shown to every participant, which makes it similar to auctions. Online auctions and negotiation systems were used to study auction and negotiation processes, and the mechanisms’ efficiency. The results show that buyers did best using auctions, followed by non-verifiable and verifiable negotiations. We also looked into the differences between auctions and negotiations in terms of their duration, sellers’ and buyers’ involvement, and efficiency and conclude that the behavior of buyers and sellers cannot be explained solely on the grounds of traditional economics. It can, however, be explained on the grounds of social exchange theory and behavioral economics. In multi-bilateral negotiations competition and social behavior coexist. When transparency is introduced the social effect becomes stronger, weakening the impact of competition.     

Procurement auctions and negotiations: An empirical comparison

Real-world procurement transactions often involve multiple attributes and multiple vendors. Successful procurement involves vendor selection through appropriate market mechanisms. The advancement of information technologies has enabled different mechanisms to be applied to similar procurement situations. However, advantages and disadvantages of using such mechanisms remain unclear. The presented research compares two types of mechanisms: multi-attribute reverse auctions and multi-attribute multi-bilateral negotiations in e-procurement. Both laboratory and online experiments were carried out to examine their effects on the process, outcomes, and suppliers’ assessment. The results show that in procurement, reverse auctions were more efficient than negotiations in terms of the process. Auctions also led to greater gains for the buyers than negotiations, but the suppliers’ profit was lower in auctions. The buyer and the winning supplier jointly reached more efficient and balanced contracts in negotiations than in auctions. The results also show that the suppliers’ assessment was affected by their outcomes: the winning suppliers had a more positive assessment toward the process, outcomes, and the system. The findings are consistent in both the laboratory and the online settings. Finally, the implications of this study for practitioners and researchers are discussed.