Abstract
In this paper we present a novel option pricing mechanism for reducing the exposure problem encountered by bidders with complementary valuations when participating in sequential, second-price auction markets. Existing option pricing models have two main drawbacks: they either apply a fixed exercise price, which may deter bidders with low valuations, thereby decreasing allocative efficiency, or options are offered for free, in which case bidders are less likely to exercise them, thereby reducing seller revenues. Our novel mechanism with flexibly priced options addresses these problems by calculating the exercise price as well as the option price based on the bids in an auction. For this novel setting we derive the optimal strategies for a bidding agent with complementary preferences. Furthermore, to compare our approach to existing ones, we derive, for the first time, the bidding strategies for a fixed price mechanism, in which exercise prices for options are fixed by the seller. Finally, we use these strategies to empirically evaluate the proposed option mechanism and compare it to existing ones, both in terms of the seller revenue and the social welfare. We show that our new mechanism achieves higher market efficiency, while still ensuring higher revenues for the seller than direct sale auctions (without options).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Boutilier, C., Goldszmidt, M., Sabata, B.: Sequential auctions for the allocation of resources with complementarities. In: Proc. of IJCAI 1999, pp. 527–523. Morgan Kaufmann (1999)
Cramton, P., Shoham, Y., Steinberg, R.: Combinatorial auctions. MIT Press (2006)
Greenwald, A., Boyan, J.: Bidding under uncertainty: theory and experiments. In: UAI 2004: Proc. of the 20th Conference on Uncertainty in AI, pp. 209–216 (2004)
Hull, J.C.: Options, Futures, and Other Derivatives, 5th edn. Prentice Hall (2003)
Juda, A.I., Parkes, D.C.: An Options-Based Method to Solve the Composability Problem in Sequential Auctions. In: Faratin, P., Rodríguez-Aguilar, J.-A. (eds.) AMEC 2004. LNCS (LNAI), vol. 3435, pp. 44–58. Springer, Heidelberg (2006)
Juda, A.I., Parkes, D.C.: An Options-Based Solution to the Sequential Auction Problem. Artificial Intelligence 173(7-8), 876–899 (2009)
Krishna, V.: Auction theory. Academic Press (2002)
Mous, L., Robu, V., La Poutré, J.A.: Using Priced Options to Solve the Exposure Problem in Sequential Auctions. In: Ketter, W., La Poutré, H., Sadeh, N., Shehory, O., Walsh, W. (eds.) AMEC 2008. LNBIP, vol. 44, Springer, Heidelberg (2010)
Osepayshvili, A., Wellman, M., Reeves, D., MacKie-Mason, J.: Self-confirming price prediction for bidding in simultaneous ascending auctions. In: Proc. of UAI 2005, pp. 441–449 (2005)
Robu, V., Noot, H., La Poutré, J.A., van Schijndel, W.-J.: An agent platform for auction-based allocation of loads in transportation logistics. In: Proc. of AAMAS 2008, Industry Track, pp. 3–10 (2008)
Vetsikas, I.A., Jennings, N.R.: Bidding strategies for realistic multi-unit sealed-bid auctions. In: 23rd Conference on Artificial Intelligence, AAAI 2008, Chicago (2008)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Robu, V., Vetsikas, I.A., Gerding, E.H., Jennings, N.R. (2012). Flexibly Priced Options: A New Mechanism for Sequential Auctions with Complementary Goods. In: David, E., Larson, K., Rogers, A., Shehory, O., Stein, S. (eds) Agent-Mediated Electronic Commerce. Designing Trading Strategies and Mechanisms for Electronic Markets. AMEC TADA 2010 2010. Lecture Notes in Business Information Processing, vol 118. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-34200-4_5
Download citation
DOI: https://doi.org/10.1007/978-3-642-34200-4_5
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-34199-1
Online ISBN: 978-3-642-34200-4
eBook Packages: Computer ScienceComputer Science (R0)