Japanese auction

A Japanese auction[1] (also called ascending clock auction[2]) is a dynamic auction format. It proceeds in the following way.

Strategies

Suppose a buyer believes that the value of the item is v. Then this buyer has a simple dominant strategy: stay in the arena as long as the displayed price is below v; exit the arena whenever the displayed price equals v. This means that the Japanese auction is a truthful mechanism: it is always best to act according to your true value, regardless of the others' values.

When all buyers play their dominant strategies, the outcome is:

Comparison to Vickrey auction

A Vickrey auction is a sealed-bid auction, where all buyers submit their bids in advance, the highest bidder wins and pays the second-highest bid. It is a truthful mechanism. At first glance, its outcome looks identical to the outcome of the Japanese auction. Moreover, the Vickrey auction is apparently much faster, since it does not require bidders to wait until the clock increases to the final price. However, the Japanese auction has several advantages that make it much more useful in practice.[2]

Comparison to English auction

An English auction is an dynamic "open outcry" auction. Here, the displayed price is increased by bidders shouting prices above the displayed price, rather than by the auctioneer's clock. At first glance, this seems equivalent to the Japanese auction: apparently, it is a dominant strategy for each buyer whose price is above the displayed price, to always bid the minimal allowed increment (e.g. one cent) above the displayed price. However, in practice, jump bidding is often observed: buyers increase the displayed price much more than the minimal allowed increment. Obviously, jump-bidding is not possible in a Japanese auction. This may be seen as either an advantage or a disadvantage of the Japanese auction format.

See also

The Japanese auction has similarities to the ante in Poker.[5]

References

  1. Schindler, J., 2003. Late bidding on the Internet. Working paper. University of Vienna. Archived at Archive.org
  2. 1 2 Milgrom, Paul; Segal, Ilya (2014). "Deferred-acceptance auctions and radio spectrum reallocation". Proceedings of the fifteenth ACM conference on Economics and computation - EC '14. p. 185. doi:10.1145/2600057.2602834. ISBN 9781450325653.
  3. This is not true for a Vickrey auction. Suppose the auctioneer in a Vickrey auction sees all the bids, and calculates the maximum bid . He can then secretly ask an ally to submit a bid with a value of , in order to increase his revenue. If a bidder suspects that the auctioneer acts like this, then being truthful is NOT a dominant strategy.
  4. Milgrom, Paul R.; Weber, Robert J. (1982). "A Theory of Auctions and Competitive Bidding". Econometrica. 50 (5): 1089. doi:10.2307/1911865. JSTOR 1911865.
  5. "Auction Types & Terms". Auctusdev.com. Retrieved 2012-12-26.
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