Strategic Bidding in Knapsack Auctions

Peyman Khezr, Vijay Mohan and Lionel Page

Papers from arXiv.org

Abstract: This paper examines knapsack auctions as a method to solve the knapsack problem with incomplete information, where object values are private and sizes are public. We analyze three auction types-uniform price (UP), discriminatory price (DP), and generalized second price (GSP)-to determine efficient resource allocation in these settings. Using a Greedy algorithm for allocating objects, we analyze bidding behavior, revenue and efficiency of these three auctions using theory, lab experiments, and AI-enriched simulations. Our results suggest that the uniform-price auction has the highest level of truthful bidding and efficiency while the discriminatory price and the generalized second-price auctions are superior in terms of revenue generation. This study not only deepens the understanding of auction-based approaches to NP-hard problems but also provides practical insights for market design.

Date: 2024-02, Revised 2024-04
New Economics Papers: this item is included in nep-des and nep-gth
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