Fraction auctions: The tradeoff between efficiency and running time

Fraction auctions: The tradeoff between efficiency and running time

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Article ID: iaor20123243
Volume: 220
Issue: 2
Start Page Number: 577
End Page Number: 587
Publication Date: Jul 2012
Journal: European Journal of Operational Research
Authors: , , ,
Keywords: game theory
Abstract:

This paper studies the sales of a single indivisible object where bidders have continuous valuations. In Grigorieva et al. it was shown that, in this setting, query auctions necessarily allocate inefficiently in equilibrium. In this paper we propose a new sequential auction, called the c‐fraction auction. We show the existence of an ex‐post equilibrium, called bluff equilibrium, in which bidders behave truthfully except for particular constellations of observed bids at which it is optimal to pretend a slightly higher valuation. We show c‐fraction auctions guarantee approximate efficiency at any desired level of accuracy, independent of the number of bidders, when bidders choose to play the bluff equilibrium. We discuss the running time and the efficiency in the bluff equilibrium. We show that by changing the parameter c of the auction we can trade off efficiency against running time.

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