Communications in Information and Systems

Volume 2 (2002)

Number 4

Optimal price decremental strategy for Dutch auctions

Pages: 411 – 434

DOI: http://dx.doi.org/10.4310/CIS.2002.v2.n4.a6

Authors

Wing Ho Yuen (WINLAB, Rutgers University, Piscataway, New Jersey, U.S.A.)

Chi Wan Sung (Department of Computer Engineering and Information Technology, City University of Hong Kong)

Wing Shing Wong (Department of Information Engineering, Chinese University of Hong Kong, Shatin, N.T., Hong Kong)

Abstract

In a Dutch auction, the price of an item decreases incrementally from the starting price at regular intervals. A bidder may buy the item at any time and stop the auction at the current price. This paper presents an optimal price decrement strategy in a Dutch auction, such that the expected revenue of the auction host is maximized. Properties of the optimal solution and a simple iterative solution methodology are discussed. Numerical studies show that significant gain could be obtained compared with a simple reference strategy.

Keywords

Dutch auction, optimal auction, bidding, 3G, wireless application protocol, optimization, time discounting, online auction

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