Budget Induced Strategic Bidding in Multiunit Online Auctions

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Abstract: Jump bidding is a prevent phenomenon in online auctions with important revenue implications. We propose a novel explanation for jump bidding based on budget constraints – budget-constrained bidders have incentives to jump their bid to increase their likelihood of winning in time-prioritized online auctions. We derive the conditions under which jump bidding is optimal for bidders at the margin, i.e. the current price is one increment away from their maximum bid. We find that the gap between a bidder’s budget and his true valuation and the bid increment jointly influence the likelihood of jump bidding. We propose a hybrid strategic-at-margin (SAM) bidding strategy for budget-constrained bidders. Our discrete-event simulations suggest that SAM outperforms alternative strategies of always bidding the minimum required bid or always jumping. We also propose a proportional SAM bidding strategy that requires less information about other bidders and still outperforms the strategy of bidding the minimum.

Recommended citation: Zihong Huang, De Liu, and Alok Gupta. Budget Induced Strategic Bidding in Multiunit Online Auctions. In ICIS 2019 Proceedings, Munich, Germany, 2019