Imperfect Competition in Auction Designs

Auton Agent Multi-Agent Syst

Vytelingum

et al. 2012

In this paper, we propose a game-theoretic framework for analysing competing double auction marketplaces that vie for traders and make profits by charging fees. Firstly, we analyse the equilibrium strategies for the traders' market selection decision for given market fees using evolutionary game theory. Using this approach, we investigate how traders dynamically change their strategies, and thus, which equilibrium, if any, can be reached. In so doing, we show that, when the same type of fees are charged by two marketplaces, it is unlikely that competing marketplaces will continue to co-exist when traders converge to their equilibrium market selection strategies. Eventually, all the traders will congregate in one marketplace. However, when different types of fees are allowed (registration fees and profit fees), competing marketplaces are more likely to co-exist in equilibrium. We also find that sometimes all the traders eventually migrate to the marketplace that charges higher fees. We then further analyse this phenomenon, and specifically analyse how bidding strategies and random exploration of traders affects this migration respectively. Secondly, we analyse the equilibrium strategies of the marketplaces when they have the ability to vary their fees in response to changes in the traders' market selection strategies. In this case, we consider the competition of the marketplaces as a two-stage game, where the traders' market selection strategies are conditional on the market fees. In particular, we use a coevolutionary approach to analyse how competing marketplaces dynamically set fees while taking into account the dynamics of the traders' market selection strategies. In so doing, we find that two identical marketplaces undercut each other, and they will eventually charge the minimal fee as we set that guarantees positive market profits for them. Furthermore, Bing Shi School of Electronics and Computer Science, University of Southampton, Southampton, SO17 1BJ, UK E-mail: bs07r@ecs.soton.ac.uk Enrico H. Gerding School of Electronics and Computer Science, University of Southampton, Southampton, SO17 1BJ, UK E-mail: eg@ecs.soton.ac.uk Perukrishnen Vytelingum School of Electronics and Computer Science, University of Southampton, Southampton, SO17 1BJ, UK E-mail: pv@ecs.soton.ac.uk Nicholas R. Jennings School of Electronics and Computer Science, University of Southampton, Southampton, SO17 1BJ, UK E-mail: nrj@ecs.soton.ac.uk 2 we extend the co-evolutionary analysis of the marketplaces' fee strategies to more general cases. Specifically, we analyse how an initially disadvantaged marketplace with an adaptive fee strategy can outperform an initially advantaged one with a fixed fee strategy, or even one with an adaptive fee strategy, and how competing marketplaces evolve their fee strategies when different types of fees are allowed.

Section: Related Workmentioning

confidence: 99%

Section: Related Workmentioning

confidence: 99%

An equilibrium analysis of market selection strategies and fee strategies in competing double auction marketplaces

Shi

Auton Agent Multi-Agent Syst

Vytelingum

et al. 2012

“…In this case, the equilibrium strategy of each seller is given by a Nash equilibrium at which each seller's reserve price is a utility maximising best response to the reserve price of the competing seller. When x 1 = x 2 , no pure strategy Nash equilibrium exists [1]. However, when the sellers have sufficiently different production costs, we find that a pure Nash equilibrium exists where the reserve price of both sellers is higher than their production costs.…”

Section: Seller Equilibrium Behaviourmentioning

confidence: 73%

“…We assume that there are N risk neutral buyers, each of whom requires just one item. Each buyer has valuation v independently drawn from a commonly known cumulative distribution F with density f and support [0,1]. Each risk neutral seller offers one item for sale, has production costs x i , and decides upon a reserve price r i and shill bid s i .…”

Section: Discussionmentioning

confidence: 99%

See 1 more Smart Citation

Sellers Competing for Buyers in Online Markets

Negotiation, Auctions, and Market Engineering

Rogers

Dash

et al.

We consider competition between sellers offering similar items in concurrent online auctions, where each seller must set its individual auction parameters (such as the reserve price) in such a way as to attract buyers. We show that there exists a pure Nash equilibrium in the case of two sellers with asymmetric production costs. In addition, we show that, rather than setting a reserve price, a seller can further improve its utility by shill bidding (i.e., pretending to be a buyer in order to bid in its own auction). But, using an evolutionary simulation, we show that this shill bidding introduces inefficiences within the market. However, we then go on to show that these inefficiences can be reduced when the mediating auction institution uses appropriate auction fees that deter sellers from submitting shill bids.

Competing Sellers in Online Markets: Reserve Prices, Shill Bidding, and Auction Fees

Lecture Notes in Computer Science

Rogers

Dash

et al.

In this paper, we consider competition between sellers offering similar items in concurrent online auctions, where each seller must set its individual auction parameters (such as the reserve price) in such a way as to attract buyers. We show that there exists a pure Nash equilibrium in the case of two sellers with asymmetric production costs. In addition, we show that, rather than setting a reserve price, a seller can further improve its utility by shill bidding (i.e., pretending to be a buyer in order to bid in its own auction). But, using an evolutionary simulation, we show that this shill bidding introduces inefficiences within the market. However, we then go on to show that these inefficiences can be reduced when the mediating auction institution uses appropriate auction fees that deter sellers from submitting shill bids.