Second-price Auction Research Articles

Revealing information in auctions: The optimal auction versus the second-price auction

We study the optimal information disclosure policy in the optimal auction and the second-price auction when the seller has information that additively adjusts the independent private values of the bidders. In this setting, information revelation could change the allocation of the good in both types of auctions. However, in the optimal auction, the change in allocation makes the revenue function convex in the additive adjustments, so the seller should always reveal information. In contrast, in the second-price auction, the change in allocation makes the revenue function non-convex, in which case the seller might benefit from withholding information.

Potential of carpool for network traffic management

This study examines the impact of carpool on network traffic in a highly idealized futuristic world, where all travelers are willing to participate in carpool arranged by a Transportation Network Company. We build a parsimonious carpool model that focuses on the trade-off between inconvenience costs and travel cost savings. Underlying the model is a nonlinear bipartite matching problem that seeks to maximize commuters’ welfare. By assuming the congestion effect is negligible, we derive several useful analytical results. When the inconvenience cost is less than the median trip valuation of a rider, the platform could always achieve an almost perfect match while maximizing commuters’ welfare, which corresponds to a 50% reduction in vehicular traffic flow. In the case of perfect match, if there is an even number of travelers, we propose a pricing policy that possesses all desired properties of the Vickrey-Clark-Groves (VCG) policy – a benchmark truthful policy for achieving socially optimal solution – but runs a lower deficit. Otherwise, we show the VCG policy always generates a profit. If the inconvenience cost is too high, the perfect match is no longer socially optimal, but the VCG policy still yields a positive profit. Solutions from numerical experiments generally agree with the analytical results. They also suggest that matching across O-D pairs occurs only when it has a significantly lower inconvenience cost than matching within, an unlikely event in reality. Moreover, when cross O-D matching does become prevalent, it leads to higher vehicle miles travelled, hence worse congestion. Thus, from the point of view of traffic management, cross O-D carpool should not be encouraged.

Auction theory and a note on game mechanisms

Abstract This paper will review important topics on the subject of auction theory and mechanism design, these include: efficiency first and foremost, also revenue comparison between different types of auctions and the issue of incentive compatibility, individual rationality with the general idea and proof that bilateral trade is inefficient. Mechanism design theory tells us that if buyers and sellers both have private information full efficiency is impossible, however Vickrey auction (single unit auction) will be efficient i.e. will put the goods in the hands of the buyers that value them most. However, the conclusion from this paper is that because of overvaluation of bidders the main result is inefficient, i.e. bids are too high. When weak and strong bidders are compared the main conclusion is that strong bidders’ expected payoff is higher in second price auction (SPA), while weak bidder prefers first price auction (FPA) bid.

A Study of the Applicability of Ideal Lattice-Based Fully Homomorphic Encryption Scheme to Ethereum Blockchain

Without the requirement of trusted third parties (TTPs), Blockchain builds an environment where mutual trust among valid members is established. Nevertheless, the associated transparency property caused a hazard to real-world applications because every on-chain information is exposed to the public. That implies those applications involving sensitive data or personal information, which require security and privacy protection, are not suitable to be implemented in Blockchain, directly. Fully homomorphic encryption (FHE) schemes have been treated as one of the end-to-end solutions to data security and privacy protection problems. In this article, we examine the possibility (or cost) of embedding the ideal lattice-based FHE into the Ethereum Blockchain for building up a new trustworthy framework with security and privacy protection capability. Due to the limitations of current Blockchain, the execution of FHE is conducted off-chain; at the same time, on-chain members can call FHE-based functions to directly compute the ciphertext domain operations after their Smart Contracts have been deployed to the Blockchain. To illustrate and benchmark the examining results of our framework, an FHE and Blockchain-based Vickrey auction system is also developed, in which the online bidding prices are kept in secret. Simultaneously, the determination of the winner and the transferring of payments are conducted autonomously by Smart Contracts.

A trustworthy and incentivized smart grid energy trading framework using distributed ledger and smart contracts

The smart grid integrated with renewable energy sources (RESs) allows to perform peer to peer selling of energy via Local Energy Market (LEM). However, it faces the challenges of lack of transparency and verification of energy distribution, single-point failure in the energy data management, user’s privacy, non-incentivized trading and lack of trust on the energy trading. To address these problems, we propose a trustworthy and incentivized framework for smart grid energy trading using distributed ledger technology and smart contracts. We propose different smart contracts viz; energy injection into smart grid, energy bidding to submit energy demand, energy trading and energy utilization. These contracts run on an ethereum blockchain platform with proof of stake (PoS) consensus mechanism to record energy trading related data. We have applied an iterative Vickrey–Clarke–Grove (Vickrey auction) method for the incentivized energy trading in context of both prosumers and consumers. The proposed framework offers trustworthy and incentivized trading of energy, participants’ privacy, data transparency and no single point failure. The experimental results of the proposed framework are derived in terms of average cost of energy injection and bidding transactions, throughput and the incentivized trading by considering different test scenarios.

Auctions with speculators: An experimental study

We run experiments on second-price auctions with resale opportunities, where a zero-value bidder, called a speculator, is commonly known to exist. Garratt and Tröger (2006a) show that there is a continuum of speculative equilibria, apart from the standard bid-your-value one, in which the speculator gets the good in the first stage auction with positive probability. She pays a price of zero and resells it to the private-value bidder in the second stage. In the most extreme equilibrium, the private-value bidder always bids zero and the speculator obtains the good. We find that bidders frequently play strategies that are consistent with a speculative equilibrium. When the speculative equilibrium is not observed, the presence of the speculator leads to more aggressive bidding by private-value bidders that results in increased revenue for the seller. An increase in the number of private-value bidders makes speculation harder, but does not eliminate it.

Can resale harm the original seller in a second-price auction?

We consider second-price auctions with participation costs and investigate the revenue effects of a resale possibility. There are two potential bidders whose valuations are independently and identically distributed, and each bidder must incur a participation cost to bid in the auction. Due to these costs, there may be a resale opportunity in an otherwise efficient second-price auction. We show that when values are drawn from a uniform distribution, resale increases (decreases) entry of the lower-(higher-)cost bidder and decreases the original seller’s expected revenue.

Reverse Auction-Based Services Optimization in Cloud Computing Environments

Cloud-based services have been increasingly used to provide on-demand access to a large amount of computing requests, such as data, computing, resources, and so on, in which it is vitally important to correctly select and assign the right resources to a workload or application. This paper presents a novel online reverse auction scheme based on online algorithm for allocating the cloud computing services, which can help the cloud users and providers to build workflow applications in a cloud computing environment. The online reverse auction scheme consists of three parts: online algorithm design, competitive ratio calculation, and performance valuation. The online reverse auction-based algorithm is proposed for the cloud user agent to choose the final winners based on Vickrey–Clarke–Groves (VCG) mechanism and online algorithm (OA). The competitive analysis is applied to calculate the competitive ratio of the proposed algorithm compared with the offline algorithm. This analysis method is significant to measure the performance of proposed algorithm, without the assumption of the distribution of cloud providers’ bids. The results prove that the proposed online reverse auction-based algorithm is the appropriate mechanism because it allows the cloud user agent to make purchase decisions without knowing the future bids. The difference of auction rounds and transaction cost can impressively influence and improve the performance of the proposed reverse auction algorithm.

AucSwap: A Vickrey auction modeled decentralized cross-blockchain asset transfer protocol

With the rapid development of blockchain technology, the cross-blockchain asset transfer has been in great demand. However, most existing cross-blockchain solutions encounter low efficiency problems due to the centralized features, unfriendly development environment, and difficulty in cooperation. This paper proposes an interaction protocol for secure and efficient cross-blockchain transfer process, wherein the cross-blockchain asset transfer is modeled as an auction process. We design our protocol by leveraging the atomic swap technology and Vickrey auction scheme to achieve efficient cross-blockchain asset transfer, without sacrificing the decentralized control. To achieve the transfer efficiency, we optimize the Vickrey auction scheme to share data within the auction and delivery process synchronously. This results in a efficient user information exchange. The experimental results show that not only can our protocol achieve compatibility, but it also incurs little communication overhead in high throughput. A cross-blockchain transfer process can be accomplished in average 4 rounds of interaction. The difference between the transaction completion time and the bid waiting time is less than 1 second. Besides, our protocol guarantees the exchange rate at a reasonable range. The ratio of the cross-blockchain exchange rate to the real exchange rate converges to 0.9 for approximately 200 participants. The transaction fee decreases sharply with the increase of the number of auction participants.

Devising a trading mechanism with a joint price adjustment for local electricity markets using blockchain. Insights for policy makers

The new potential of Distributed Energy Resources (DER), residential consumers, buildings, and prosumers in terms of controllable devices, self-generation, and storage makes them more active in the market encouraged by lower electricity prices. In addition, integrating a higher volume of volatile Renewable Energy Sources (RES) that unstress the public grid by local trading interactions is a desirable target of Local Electricity Markets (LEM). In this paper, we propose a blockchain trading mechanism to simulate the electricity transactions for 11 modern smart houses with more than 300 appliances, 8 roof- or faced-PV systems, and smart-metered 15-min readings that form a small-size community. The electricity generated at the community level lowers the electricity bills and brings benefits for prosumers (sellers) and consumers (buyers). Several trading mechanisms for LEM transactions including auctions such as Uniform Price (UP), Pay-As-Bid (PAB), Generalized Second-Price (GSP), Vickrey-Clark-Groves (VCG) methods are implemented to evaluate the benefits and show their efficiency. After the market is initially cleared, an adjustment coefficient of the price is proposed for both sides (seller and buyer) to enlarge the trading potential at the community level using blockchain technology. It proves to bring excellent results to the LEM participants and enhance trading with outstanding benefits.

Patent Auctions and Bidding Coalitions: Structuring the Sale of Club Goods

Auctioneers of patents are observed to allow joint bidding by coalitions of buyers. These auctions are distinguished by the good for sale being non-rivalrous, but still excludable, in consumption{that is, they auctions of club goods. This affects how coalitional bidding impacts auction performance. We study the implications of coalitions of bidders on second-price (or equivalently, ascending-price) auctions. Although the formation of coalitions can benefit the seller, we show that stable coalition profiles tend to consist of excessively large coalitions, to the detriment of both auction revenue and social welfare. Limiting the permitted coalition size increases efficiency and confers benefits on the seller. Lastly, we compare the revenues generated by patent auctions and multi-license auctions, and we find that the latter are superior in a large class of environments. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

A reverse Vickrey auction for physical internet (PI) enabled parking management systems

In this paper, two types of parking spaces, namely public and private parking spaces, are technically allocated to the drivers who may require a long or short time slot. Dynamic allocation and pricing process increase the complexity of evaluating the performance. We design a Physical Internet (PI) enabled parking management system to establish parking networks and collect real-time information for management and evaluation. Then, we propose a truthful, reverse Vickrey auction to allocate and price parking spaces in a static setting. We further incorporate the static auction mechanism into a continuous-time Markov Chain model and analyze the effects of the key factors (e.g., dynamic arrival rate and abandonment rate) in a dynamic setting. Our experimental results show that the expected price of the reverse Vickrey auction is lower than the market price. The expected profit is increasing in the arrival rate of parking spaces in the system. Finally, we numerically examine the benefits of parking space owners, drivers and the system, and highlight the associated managerial implications.

Ranking reversals in asymmetric auctions

This paper compares the first-price auction and the second-price auction with several asymmetric bidders who are either weak or strong. The ranking of these auctions in terms of profit may flip as the exogenous reserve price or the number of weak or strong bidders change. Similarly, with endogenous reserve prices the ranking may depend on the seller’s own-use valuation. In other words, the ranking may be fragile to changes along these dimensions. Existing models rule out such ranking reversals by imposing substantial structure on type distributions. The current paper relies on simple mechanism design arguments that require less structure.

A Serious Gaming Approach for Crowdsensing in Urban Water Infrastructure with Blockchain Support

This paper presents the current state of the gaming industry, which provides an important background for an effective serious game implementation in mobile crowdsensing. An overview of existing solutions, scientific studies and market research highlights the current trends and the potential applications for citizen-centric platforms in the context of Cyber–Physical–Social systems. The proposed solution focuses on serious games applied in urban water management from the perspective of mobile crowdsensing, with a reward-driven mechanism defined for the crowdsensing tasks. The serious game is designed to provide entertainment value by means of gamified interaction with the environment, while the crowdsensing component involves a set of roles for finding, solving and validating water-related issues. The mathematical model of distance-constrained multi-depot vehicle routing problem with heterogeneous fleet capacity is evaluated in the context of the proposed scenario, with random initial conditions given by the location of players, while the Vickrey–Clarke–Groves auction model provides an alternative to the centralized task allocation strategy, subject to the same evaluation method. A blockchain component based on the Hyperledger Fabric architecture provides the level of trust required for achieving overall platform utility for different stakeholders in mobile crowdsensing.

How do sellers benefit from Buy-It-Now prices in eBay auctions?

In eBay “Buy-It-Now” auctions, sellers make a take-it-or-leave-it price (BIN-price) offer prior to the auction. A buyer can either buy the good at the BIN-price or start the auction. This article studies how eBay sellers set BIN-prices and whether they benefit from using them. We apply a new experimental approach that combines the advantages of the lab and the field: The experiment is conducted in the lab while using the eBay auction platform and eBay traders. We find that the eBay auction format leads to prices substantially below those expected in second-price auctions. Moreover, the publicly available information on eBay about buyer experience and bidding behavior correlates with the observed price deviation and sellers use this information strategically when deciding on their BIN-price. More experienced sellers ask for higher BIN-prices, whereas seller risk aversion does not affect their BIN-price. Compared to an eBay auction without a BIN-price, an auction with a BIN-price is more efficient and generates significantly higher revenue.

Truthful online double auction based dynamic resource provisioning for multi-objective trade-offs in IaaS clouds.

Auction designs have recently been adopted for static and dynamic resource provisioning in IaaS clouds, such as Microsoft Azure and Amazon EC2. However, the existing mechanisms are mostly restricted to simple auctions, single-objective, offline setting, one-sided interactions either among cloud users or cloud service providers (CSPs), and possible misreports of cloud user’s private information. This paper proposes a more realistic scenario of online auctioning for IaaS clouds, with the unique characteristics of elasticity for time-varying arrival of cloud user requests under the time-based server maintenance in cloud data centers. We propose an online truthful double auction technique for balancing the multi-objective trade-offs between energy, revenue, and performance in IaaS clouds, consisting of a weighted bipartite matching based winning-bid determination algorithm for resource allocation and a Vickrey–Clarke–Groves (VCG) driven algorithm for payment calculation of winning bids. Through rigorous theoretical analysis and extensive trace-driven simulation studies exploiting Google cluster workload traces, we demonstrate that our mechanism significantly improves the performance while promising truthfulness, heterogeneity, economic efficiency, individual rationality, and has a polynomial-time computational complexity.

All-pay auctions with private signals about opponents’ values

We study all-pay auctions where each player observes her private value as well as a noisy private signal about the opponent’s value, following Fang and Morris’s (J Econ Theory 126(1):1–30, 2006) analysis of winner-pay auctions with multidimensional private signals. A unique symmetric monotonic equilibrium exists if the signal is not informative enough. When the signal is sufficiently informative, there exists a symmetric non-monotonic equilibrium in which all types of players randomize in overlapping supports. The revenue is lower than that in the standard independent private value setting. Fixing the signal’s informativeness, the all-pay auction raises lower revenue than the second-price auction, whereas the revenue ranking between the all-pay and the first-price auction is ambiguous.

Quantifying the Inefficiency of Multi-unit Auctions for Normal Goods

We study multi-unit auctions for homogenous goods in a private value setting where bidders have non-quasilinear preferences. Several recent impossibility results study this setting and find there is no mechanism that retains the Vickrey auction’s desired incentive and efficiency properties without quasilinearity. While a fully efficient mechanism is impossible, we show that any undominated outcome of the Vickrey auction has a negligible inefficiency when bidder wealth effects are sufficiently small. In order to show this, we first place bounds on undominated bid behavior in the Vickrey auction when bidders have non-quasilinear preferences. We use (Marshallian) deadweight loss as our inefficiency metric, and we derive a tight upper bound on the inefficiency associated with the Vickrey auction in terms of the degree of bidder wealth effects. As wealth effects diminish, the bound continuously approaches zero. Other common multi-unit auction formats do not have this property, and their worst-case inefficiencies are higher than that of the Vickrey auction.

Cross-Game Learning and Cognitive Ability in Auctions

Overbidding in second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, cross-game learning has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher ability bidders.

Antimonopoly Regulation Method in Energy Markets Based on the Vickrey–Clarke–Groves Mechanism

We evaluate the applicability of the generic Vickrey-Clarke-Groves (VCG) mechanism as an antimonopoly measure against a profit-maximizing producer with market power operating a portfolio of generating units at the centralized two-settlement energy market. The producer may indicate in its bid not only the altered cost function but also the distorted values of the technical parameters of its generating units, which enter the system-wide constraints of the centralized dispatch optimization problem. To ensure the applicability of the VCG method in this setting, we identify an additional assumption on the changes of the feasible set of the centralized dispatch optimization problem induced by variations of the producer's technical parameters. In the framework of the generic VCG mechanism, we propose an antimonopoly regulation method based on a regulator estimate of the producer's truthful bid. If this estimate is exact, the producer's maximum profit coincides with that in the case of the truthful bidding when no antimonopoly measure is applied. If the estimate is not exact, the error affects neither the producer's (weakly) dominant bid nor its optimal nodal output but manifests itself in the total uplift payment. This ensures an efficient allocation in the form of the optimal output/consumption schedule and shields the (pre-uplift) market prices from the producer's market power. We compare the suggested method with the alternative antimonopoly regulation approach based on the replacement of the producer's bid by a bid composed by the regulator.