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Design of discrete Dutch auctions with consideration of time

Zhen Li, Jinfeng Yue and Ching-Chung Kuo

European Journal of Operational Research, 2018, vol. 265, issue 3, 1159-1171

Abstract: As a departure from much of the existing literature that aims at maximizing the expected revenue from a single auction, this research work is concerned with the design of discrete Dutch auctions to achieve the optimal balance between the selling price of the object and the auction duration so that the auctioneer's expected revenue per unit of time is as high as possible. The new objective is especially important in trading perishable products or services when multiple auctions are to be conducted by the auctioneer for different sellers during a limited period of time. Our findings indicate that the proposed discrete Dutch auction models generate higher average revenues per unit of time for the auctioneer than their counterparts without consideration of time. This is achieved by reducing the duration of each auction in exchange for more auctions to be held within the given time frame so that the small decrease in the revenues from the longer auctions is more than compensated for by the large increase in the total revenues from the shorter auctions. The numerical results show that the proposed discrete Dutch auction design becomes extremely useful when the number of bidders becomes large. It is also shown that complete knowledge about the number of bidders in the auction results in a higher auctioneer's expected revenue per unit of time.

Keywords: Auctions/bidding; Dutch auction; Auction revenue; Time-revenue tradeoff; Discrete bid level (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.ejor.2017.08.043

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Handle: RePEc:eee:ejores:v:265:y:2018:i:3:p:1159-1171