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Strategic Bidding in Knapsack Auctions

Author

Listed:
  • Peyman Khezr
  • Vijay Mohan
  • Lionel Page

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.

Suggested Citation

  • Peyman Khezr & Vijay Mohan & Lionel Page, 2024. "Strategic Bidding in Knapsack Auctions," Papers 2403.07928, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2403.07928
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    File URL: http://arxiv.org/pdf/2403.07928
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    References listed on IDEAS

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    1. Peyman Khezr & Anne Cumpston, 2022. "A review of multiunit auctions with homogeneous goods," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 1225-1247, September.
    2. Martino Banchio & Andrzej Skrzypacz, 2022. "Artificial Intelligence and Auction Design," NBER Chapters, in: Economics of Artificial Intelligence, National Bureau of Economic Research, Inc.
    3. Bae, Jinsoo & Kagel, John H., 2019. "An experimental study of the generalized second price auction," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 44-68.
    4. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1366-1400.
    5. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    6. repec:cup:cbooks:9781316779309 is not listed on IDEAS
    7. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781316624791, January.
    8. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781107172661, January.
    9. Orly Sade & Charles Schnitzlein & Jaime F. Zender, 2006. "Competition and Cooperation in Divisible Good Auctions: An Experimental Examination," The Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 195-235.
    10. George B. Dantzig, 1957. "Discrete-Variable Extremum Problems," Operations Research, INFORMS, vol. 5(2), pages 266-288, April.
    11. Mu'alem, Ahuva & Nisan, Noam, 2008. "Truthful approximation mechanisms for restricted combinatorial auctions," Games and Economic Behavior, Elsevier, vol. 64(2), pages 612-631, November.
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    Cited by:

    1. Silva, Lucas Santos e & Bugarin, Mauricio Soares, 2025. "Auctioning electricity transmission margins for competitive access to Brazil's National Interconnected System," Utilities Policy, Elsevier, vol. 95(C).

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