Budget Induced Strategic Bidding in Multiunit Online Auctions

In this paper, we investigate the role of the budget constraint as a reason for jump bidding in multi-unit ascending online auctions. We theoretically derive the conditions under which jump bidding outperforms the participatory strategy for bidders at their margin. We find that the budget gap and the bid increment jointly influence the bidding strategy for the budget-constrained bidder at his margin. Based on theoretical analysis, we propose a hybrid bidding strategy. Then we use a Discrete Event Simulation model to validate our proposed hybrid strategy can outperform participatory and jump strategies under certain conditions and to examine how the budget gap and the bid increment influence the bidding strategy. We find that as the ratio of the budget gap over bid increment increases, the optimal bidding strategy at margins changes from a pure Participatory strategy to a hybrid one, and finally, becomes a pure Jump strategy