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BidAnalyzer: A Method for Estimation and Selection of Dynamic Bidding Models

Author

Listed:
  • Sandy D. Jap

    () (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

  • Prasad A. Naik

    () (Graduate School of Management, University of California, Davis, Davis, California 95616)

Abstract

Online reverse auctions generate real-time bidding data that could be used via appropriate statistical estimation to assist the corporate buyer's procurement decision. To this end, we develop a method, called BidAnalyzer, which estimates dynamic bidding models and selects the most appropriate of them. Specifically, we enable model estimation by addressing the problem of ; i.e., only one of suppliers' bids is realized, and the other (-1) bids remain unobserved. To address partial observability, BidAnalyzer estimates the latent price distributions of bidders by applying the Kalman filtering theory. In addition, BidAnalyzer conducts model selection by applying multiple information criteria. Using empirical data from an automotive parts auction, we illustrate the application of BidAnalyzer by estimating several dynamic bidding models to obtain empirical insights, retaining a model for forecasting, and assessing its predictive performance in out-of-sample. The resulting one-step-ahead price forecast is accurate up to 2.95% median absolute percentage error. Finally, we suggest how BidAnalyzer can serve as a device for price discovery in online reverse auctions.

Suggested Citation

  • Sandy D. Jap & Prasad A. Naik, 2008. "BidAnalyzer: A Method for Estimation and Selection of Dynamic Bidding Models," Marketing Science, INFORMS, vol. 27(6), pages 949-960, 11-12.
  • Handle: RePEc:inm:ormksc:v:27:y:2008:i:6:p:949-960
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    File URL: http://dx.doi.org/10.1287/mksc.1080.0363
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    References listed on IDEAS

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    1. Prasad A. Naik & Murali K. Mantrala & Alan G. Sawyer, 1998. "Planning Media Schedules in the Presence of Dynamic Advertising Quality," Marketing Science, INFORMS, vol. 17(3), pages 214-235.
    2. Naik, Prasad A. & Shi, Peide & Tsai, Chih-Ling, 2007. "Extending the Akaike Information Criterion to Mixture Regression Models," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 244-254, March.
    3. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    4. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    5. Sudhindra Seshadri & Kalyan Chatterjee & Gary L. Lilien, 1991. "Multiple Source Procurement Competitions," Marketing Science, INFORMS, vol. 10(3), pages 246-263.
    6. Prasad A. Naik & Kalyan Raman & Russell S. Winer, 2005. "Planning Marketing-Mix Strategies in the Presence of Interaction Effects," Marketing Science, INFORMS, vol. 24(1), pages 25-34, June.
    7. Steven M. Shugan, 2005. "Marketing and Designing Transaction Games," Marketing Science, INFORMS, vol. 24(4), pages 525-530.
    8. Edieal J. Pinker & Abraham Seidmann & Yaniv Vakrat, 2003. "Managing Online Auctions: Current Business and Research Issues," Management Science, INFORMS, vol. 49(11), pages 1457-1484, November.
    9. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    Citations

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    Cited by:

    1. Shachat, Jason, 2009. "Procuring Commodities: Request for Quote or Reverse Auctions?," MPRA Paper 13418, University Library of Munich, Germany.
    2. Zhang, Shu & Jank, Wolfgang & Shmueli, Galit, 2010. "Real-time forecasting of online auctions via functional K-nearest neighbors," International Journal of Forecasting, Elsevier, vol. 26(4), pages 666-683, October.
    3. Ballesteros-Pérez, Pablo & del Campo-Hitschfeld, Maria Luisa & Mora-Melià, Daniel & Domínguez, David, 2015. "Modeling bidding competitiveness and position performance in multi-attribute construction auctions," Operations Research Perspectives, Elsevier, vol. 2(C), pages 24-35.
    4. Jason Shachat & Lijia Wei, 2012. "Procuring Commodities: First-Price Sealed-Bid or English Auctions?," Marketing Science, INFORMS, vol. 31(2), pages 317-333, March.
    5. Wolfgang Jank & Galit Shmueli & Shu Zhang, 2010. "A flexible model for estimating price dynamics in on-line auctions," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 59(5), pages 781-804.

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