Modeling competitive bidding: a critical essay
Management Science
Setting discrete bid levels adaptively in repeated auctions
Proceedings of the 11th International Conference on Electronic Commerce
AMEC'05 Proceedings of the 2005 international conference on Agent-Mediated Electronic Commerce: designing Trading Agents and Mechanisms
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Electronic auction markets collect large amounts of auction field data. This enables a structural estimation of the bid distributions and the possibility to derive optimal reserve prices. In this paper we propose a new approach to setting reserve prices. In contrast to traditional auction theory we use the buyer's risk statement for getting a winning bid as a key criterion to set an optimal reserve price. The reserve price for a given probability can then be derived from the distribution function of the observed drop-out bids. In order to get an accurate model of this function, we propose a nonparametric technique based on kernel distribution function estimators and the use of order statistics. We improve our estimatior by additional information, which can be observed about bidders and qualitative differences of goods in past auctions rounds (e.g. different delivery times). This makes the technique applicable to RFQs and multi-attribute auctions, with qualitatively differentiated offers.