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Internet auctions with artificial adaptive agents: A study on market design

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Author Info
Duffy, John
Ünver, M.Utku

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Abstract

We develop a model of internet auctions with the aim of understanding how rules for ending such auctions (a "hard"- or "soft"-close) affect bidding behavior. We model bidding strategies using finite automata and report results from simulations involving populations of artificial bidders who update their strategies using a genetic algorithm. Our model is shown to deliver late or early bidding behavior, depending on whether the auction has a hard- or soft-close rule in accordance with the empirical evidence. We report on other interesting properties of our model and offer some conclusions from a market design point of view.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 67 (2008)
Issue (Month): 2 (August)
Pages: 394-417
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Handle: RePEc:eee:jeborg:v:67:y:2008:i:2:p:394-417

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  2. Holland, John H & Miller, John H, 1991. "Artificial Adaptive Agents in Economic Theory," American Economic Review, American Economic Association, vol. 81(2), pages 365-71, May. [Downloadable!] (restricted)
  3. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May. [Downloadable!] (restricted)
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  4. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November. [Downloadable!] (restricted)
  5. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!]
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  6. Avery, Christopher, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 185-210, April. [Downloadable!] (restricted)
  7. David Lucking-Reiley, 1999. "Using field experiments to test equivalence between auction formats: Magic On the Internet," Framed Field Experiments 0055, The Field Experiments Website. [Downloadable!]
  8. Patrick Bajari & Ali Hortacsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June. [Downloadable!] (restricted)
  9. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December. [Downloadable!] (restricted)
  10. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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  1. Giorgio Fagiolo & Andrea Roventini, 2008. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," LEM Papers Series 2008/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
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