Sealed-bid Auction Research Articles

Taming the Communication and Computation Complexity of Combinatorial Auctions: The FUEL Bid Language

Combinatorial auctions have found widespread application for allocating multiple items in the presence of complex bidder preferences. The enumerative exclusive OR (XOR) bid language is the de facto standard bid language for spectrum auctions and other applications, despite the difficulties, in larger auctions, of enumerating all the relevant packages or solving the resulting NP-hard winner determination problem. We introduce the flexible use and efficient licensing (FUEL) bid language, which was proposed for radio spectrum auctions to ease both communications and computations compared with XOR-based auctions. We model the resulting allocation problem as an integer program, discuss computational complexity, and conduct an extensive set of computational experiments, showing that the winner determination problem of the FUEL bid language can be solved reliably for large realistic-sized problem instances in less than half an hour on average. In contrast, auctions with an XOR bid language quickly become intractable even for much smaller problem sizes. We compare a sealed-bid FUEL auction to a sealed-bid auction with an XOR bid language and to a simultaneous clock auction. The sealed-bid auction with an XOR bid language incurs significant welfare losses because of the missing bids problem and computational hardness, the simultaneous clock auction leads to a substantially lower efficiency than FUEL because of the exposure problem. This paper was accepted by Axel Ockenfels, behavioral economics and decision analysis. Funding: This work was supported by Deutsche Forschungsgemeinschaft [Grant BI 1057-1/8]. P. Milgrom gratefully acknowledges support from the U.S. National Science Foundation [Grant SES-1947514]. M. Bichler and G. Schwarz was supported by the German Research Foundation [Grants BI 1057 I-9 and 277991500]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.4465 .

Imperfect competition in online auctions

We study online markets where two sellers sequentially choose reserve prices and then hold ascending auctions. Buyers can bid in both auctions and can switch between them as frequently as they like. We adapt the revenue equivalence approach of Myerson (1981) to obtain total revenue generated by the buyers and the split of this revenue between the sellers. We find a unique (ɛ-perfect) equilibrium outcome, in which the first seller to choose a reserve price enjoys a first-mover advantage, maintained by selecting a price low enough to discourage the second seller from undercutting this price. Both prices are above the sellers’ marginal costs, but below what a monopolist would set. Our results contrast with Burguet and Sákovics (1999), in which the sellers simultaneously choose reserve prices for separate, traditional sealed-bid auctions in which each buyer can bid in a single auction only. They do not find a unique equilibrium outcome (due to mixed strategies) and they only partially characterize equilibrium payoffs.

Anchoring effects in repeated auctions of homogeneous objects: Evidence from Macao

We provide evidence of anchoring effects from the sealed-bid auctions of vehicle plates in Macao. Vehicle plates are homogeneous in use value and differ only in character and numerical sequences. Nevertheless, vehicle plates with particular numerical sequences are consistently and repeatedly auctioned off in Macao, thus providing unique panel data that facilitate the identification of an anchoring effect. We adopt a hedonic pricing model to estimate the rational price of vehicle plates. We find that when bidding on a numerical sequence, bidders anchor on the winning bid in the previous auction, which result in continuation of the winning bid price.

Ordering properties of the second smallest and the second largest order statistics from a general semiparametric family of distributions

In this article, we consider the second smallest and the second largest order statistics from a general semiparametric family of distributions. The fail-safe system, the second-price sealed-bid auction, the second-price reversed auction are some classic examples where these order statistics are used. Here, we derive some stochastic comparisons results for these order statistics. Further, we show that the developed results hold for many well-known semiparametric models, namely, proportional hazard and reversed rates models, scale model, and proportional odds model.

Quantum and semi-quantum sealed-bid auction: vulnerabilities and advantages

A family of existing protocols for quantum sealed-bid auction is critically analyzed, and it is shown that they are vulnerable under several attacks (e.g., the participant's and non-participant's attacks as well as the collusion attack of participants) and some of the claims made in these works are not correct. We obtained the bounds on the success probability of an eavesdropper in accessing the sealed-bids. Further, realizing the role of secure sealed-bid auction in the reduction of corruption, a new protocol for sealed-bid auction is proposed which is semi-quantum in nature, where the bidders do not have quantum resources but they can perform classical operations on the quantum states. The security of the proposed protocol is established against a set of attacks, and thus it is established that the proposed protocol is free from the vulnerabilities reported here in the context of the existing protocols.

Last minute only bidding is implausible in eBay sealed bid type-of-auctions

In recent years internet auctions have attracted much attention. This paper discusses the "last minute bidding" (sniping) phenomenon, first investigated by Roth and Ockenfels (American Economic Review 92, 1093-1103) in eBay, fixed-end, auctions. Unlike standard auctions where each offer is processed by the auctioneer due to system traffic, and connection time, in eBay auctions very late bids may be left unprocessed. In the paper we consider a simple two-players, two-periods sealed-bid auction model, inspired by eBay auctions, with private values and complete information. The main difference with respect to e-Bay auctions is given by the first period. Indeed, players can submit at most one bid per period. In the first stage bids are processed with certainty by the system while in the second stage, with positive probability, bids may not be processed due to system congestion. Unlike eBay we show how in this model last minute, that is second stage only, bidding may have low plausibility, as it can be a Nash equilibrium only under very specific circumstances and is never a unique best reply. Intuitively this is because the first stage is sealed-bid, with at most one offer per bidder, and players have no guarantee that they could outbid the opponent in the second period, once after the first round they realise that their bid is not the best.

EggBlock: Design and Implementation of Solar Energy Generation and Trading Platform in Edge-Based IoT Systems with Blockchain.

In this paper, to balance power supplement from the solar energy’s intermittent and unpredictable generation, we design a solar energy generation and trading platform (EggBlock) using Internet of Things (IoT) systems and blockchain technique. Without a centralized broker, the proposed EggBlock platform can promote energy trading between users equipped with solar panels, and balance demand and generation. By applying the second price sealed-bid auction, which is one of the suitable pricing mechanisms in the blockchain technique, it is possible to derive truthful bidding of market participants according to their utility function and induce the proceed transaction. Furthermore, for efficient generation of solar energy, EggBlock proposes a Q-learning-based dynamic panel control mechanism. Specifically, we set the instantaneous direction of the solar panel and the amount of power generation as the state and reward, respectively. The angle of the panel to be moved becomes an action at the next time step. Then, we continuously update the Q-table using transfer learning, which can cope with recent changes in the surrounding environment or weather. We implement the proposed EggBlock platform using Ethereum’s smart contract for reliable transactions. At the end of the paper, measurement-based experiments show that the proposed EggBlock achieves reliable and transparent energy trading on the blockchain and converges to the optimal direction with short iterations. Finally, the results of the study show that an average energy generation gain of 35% is obtained.

Collaborative Flow-shop Scheduling Using Simulated Annealing and First Price Sealed Bid Auction to Minimize Total Cost and Make-span

Collaborative Flow-shop Scheduling Using Simulated Annealing and First Price Sealed Bid Auction to Minimize Total Cost and Make-span

Adversarial risk analysis for auctions using non-strategic play and level-k thinking: A general case of n bidders with regret

First-price sealed-bid auctions have been modeled using a utility function that takes into account bidders’ regret in case of winning or losing the auctioned item. However, that modeling does not consider bidders’ wealth which is an important determinant of bidders’ behavior in these auctions. In this paper, we apply an adversarial risk analysis approach for these auctions and find solutions using non-strategic play and level-k thinking solution concepts assuming n bidders. We define new regret parameters and a modified utility function to incorporate the effect of bidders’ wealth on their bidding behavior. In our modeling, we assume that the auctioned item is a normal item and has a reserve price. We give numerical examples to illustrate our methodology for each solution concept.

Anonymous Quantum Sealed-Bid Auction

In this brief, we present a novel quantum protocol for sealed-bid auction and design the corresponding quantum circuits. In the proposed protocol, we introduce two auctioneers to ensure that they can supervise each other, where one is a classical auctioneer, and the other is a quantum auctioneer. Furthermore, we turn sealed-bid auction into secure multiparty summation by employing the Chinese Remainder Theorem to achieve the anonymity. Compared with the related protocols, the proposed protocol can meet more security properties, e.g., anonymity, fairness, verifiability, secrecy and non-repudiation.

A secure quantum sealed-bid auction protocol based on quantum public key encryption

A secure quantum sealed-bid auction protocol based on quantum public key encryption

SBRAC: Blockchain-based sealed-bid auction with bidding price privacy and public verifiability

Electronic auction (e-auction) has become one of the most popular approaches to allocate resources or services in contemporary society because of removing physical limitations of traditional auctions. The rapid expansion of e-auction enhances work efficiency but incurs some new and distinctive challenges such as low-robustness, data privacy, and lack of trust. To address the above concerns, various auction designs have been proposed by researchers from the academic and industrial circles. However, most of them fail in simultaneously achieving decentralization (i.e. auctioneer-free), privacy-preserving (i.e. bids privacy), collusion-resistance, and secure-channel free. In this paper, we present an effective smart contract-based verifiable privacy-preserving sealed-bid reverse auction scheme, which not only has no need for trusted third parties, but also achieves robustness and privacy protection of losing bids even in the face of overwhelming collusion. In this scheme, the central auctioneer is replaced with some carefully designed smart contracts for decentralization, while zero-knowledge proof and anonymous veto networks are used to avoid the secret communication channel, support the public verifiability and detect the malicious behaviors of bidders. More practically, the complexity of the designed scheme is independent of the number of bidders. Finally, we implement a prototype of our design based on a locally simulated Ethereum test network. The extensive experimental results demonstrate the scheme is the high efficiency and practicality.

A Feasible Quantum Sealed-Bid Auction Scheme Without an Auctioneer

In this article, we first define a primitive problem of secure multiparty computations, i.e., secure multiparty disjunction (SMD), and present a novel quantum protocol for SMD that can ensure information-theoretical security, i.e., unconditional security. Furthermore, based on the quantum SMD protocol, we design a quantum sealed-bid auction (QSA) scheme without an auctioneer. In the proposed QSA scheme, all bidders can jointly find the winning bidder without the help of an auctioneer while it can perfectly protect the privacy of nonwinning bidders. The proposed quantum SMD protocol and quantum QSA scheme take Bell states as quantum resources and only perform single-particle Pauli operators and two-particle Bell measurements. Finally, we simulate the related quantum protocols in Qiskit and verify the correctness and the feasibility of the proposed protocols.

Dispatching Model in Online Taxi System by Using Stable Marriage and First Price Sealed Bid Auction Models

Dispatching Model in Online Taxi System by Using Stable Marriage and First Price Sealed Bid Auction Models

Quantum Sealed-Bid Auction Without a Trusted Third Party

A sealed-bid auction is an essential tool for trading commodities in modern society. However, the non-winning bidders in previously proposed sealed-bid auction schemes lack privacy protection. In this paper, we define a sealed-bid auction with strong privacy protection, which can protect the privacy of all non-winning bidders. In order to fulfil the task, we first present a quantum secret sharing protocol and a secure quantum summation protocol and then design their corresponding quantum circuits, where the security of the latter is guaranteed by the former, while the former is information-theoretically secure. We further present a quantum seal-bid auction (QSA) scheme with strong privacy protection based on the designed quantum protocols. In our QSA scheme, each bidder first encodes a private vector by his private bid and public agreement information, and then all bidders jointly compute the summations of their respective private vectors without a trusted third party. Finally, we verify the correctness and the feasibility of the proposed QSA scheme by circuit simulations in IBM Qiskit.

Anonymous Sealed-Bid Auction on Ethereum

In a competitive market, online auction systems enable optimal trading of digital products and services. Bidders can participate in existing blockchain-based auctions while protecting the confidentiality of their bids in a decentralized, transparent, secure, and auditable manner. However, in a competitive market, parties would prefer not to disclose their interests to competitors, and to remain anonymous during auctions. In this paper, we firstly analyze the specific requirements for blockchain-based anonymous fair auctions. We present a formal model tailored to study auction systems that facilitate anonymity, as well as a generic protocol for achieving bid confidentiality and bidder anonymity using existing cryptographic primitives such as designated verifier ring signature. We demonstrate that it is secure using the security model we presented. Towards the end, we demonstrate through extensive simulation results on Ethereum blockchain that the proposed protocol is practical and has minimal associated overhead. Furthermore, we discuss the complexity and vulnerabilities that a blockchain environment might introduce during implementation.

Rent distribution in an ex-vessel auction market of fisheries

While the rent generation for harvesters in common property resource exploitation has been well studied, questions about the rent distribution between the resource users and the downstream sector remain. We study the effects of information asymmetry on the distribution of rent between harvesters and buyers in the ex-vessel fish market and discuss the implication on the outcomes of natural resource management. Under a first-price sealed-bid auction of the fish-by-fish firsthand market in Japan, the markdown gained by buyers is estimated using a structural auction model with a nonparametric method. The results suggest that auction winners enjoy considerably high markdown (48% on average) from market transactions in fish. In a market in which asymmetric information drives down the price, the markdown can work as a resource management tax and disincentivize harvesters from overfishing and overinvesting. This “unintended tax” should be recognized in the design of public policy because a policy that changes the equilibrium may affect the trade-off between marginalized low-income harvesters and the abundant resource stock.

A First-Price Sealed-Bid Asymmetric Auction When Two Bidders Have Respective CRRA and General Utility Functions

We study a first-price auction with two bidders where one bidder is characterized by a constant relative risk aversion utility function (i.e., a concave power function) while the other has a general concave utility function. We establish the existence and uniqueness of the optimal strategic markups and analyze the effects of one bidder’s risk aversion level on the optimal strategic markups of him and his opponent’s, the allocative efficiency of the auction, and the seller’s expected revenue, respectively.

PPChain: A Privacy-Preserving Permissioned Blockchain Architecture for Cryptocurrency and Other Regulated Applications

Existing (popular) blockchain architectures, including the widely used Ethereum and Hyperledger, are generally not designed to achieve conflicting properties such as anonymity and regulation, and transparency and confidentiality. In this article, we propose a privacy-preserving permissioned blockchain architecture (PPChain) that permits one to also introduce regulation, where PPChain's architecture is modified from that of Ethereum. Specifically, we integrate the cryptographic primitives (group signature and broadcast encryption), and adopt practical byzantine fault tolerance consensus protocol with a validate-record separation mechanism, as well as removing the transaction fee and mining reward. To show the utility of PPChain, we provide qualitative security and privacy analysis, and performance analysis. We also explain how PPChain can be deployed in regulation applications, using cryptocurrency, food supply chain, and sealed-bid auctions as examples.

Detecting bid-rigging coalitions in different countries and auction formats

We propose an original application of screening methods using machine learning to detect collusive groups of firms in procurement auctions. As a methodical innovation, we calculate coalition-based screens by forming coalitions of bidders in tenders to flag bid-rigging cartels. Using Swiss, Japanese and Italian procurement data, we investigate the effectiveness of our method in different countries and auction settings, in our cases first-price sealed-bid and mean-price sealed-bid auctions. We correctly classify 90% of the collusive and competitive coalitions when applying four machine learning algorithms: lasso, support vector machine, random forest, and super learner ensemble method. Finally, we find that coalition-based screens for the variance and the uniformity of bids are in all the cases the most important predictors according to the random forest.