Optimal minimum bids and inventory scrapping in sequential, single-unit, Vickrey auctions with demand learning

Retailers often conduct sequential, single-unit auctions and need to decide the minimum bid in each auction. To reduce inventory costs, it may be optimal to scrap some of the inventory rather than holding it until it is auctioned off. In some auctions, the seller may be uncertain about the market response and hence may want to dynamically learn the demand by observing the number of posted bids. We formulate a Markov decision process (MDP) to study this dynamic auction-design problem under the Vickrey mechanism.