Most auctions, particularly for consumer goods, are single-item auctions conducted in discrete time. However, with advances in technology and the spread of the Internet it is now possible, though not common, to employ continuous combinatorial auctions where bidders can repeatedly submit bids on multiple items buddle together, in addition to bidding on the items individually. Such auctions have important potential economic advantages when items are interdependent; however, they are more complex than traditional single-item discrete time auctions. In this proposal, the PIs outline research examining consumer behavior in continuous combinatorial auctions. The research will examine the strategies bidders use in these auctions, how strategy choice is influenced by the complexity of the auction and amount of competition, and how these factors influence auction outcomes.
To date, online auctions have primarily used single-item bidding mechanisms. Results from this project will identify what the opportunities for using combinatorial auctions are, particularly in the context of consumer products. Specifically, the project will identify the conditions under which the continuous combinatorial auction is a feasible auction mechanism for general consumer use and how this type of auction should be designed to make the economic efficiecies of this type of mechanism available to the general population (as opposed to only experts in highly specialized settings).
A combinatorial auction is an auction in which several items are being sold at one time and bidders are able to place bids on multiple items with a single bid (in any combination) in addition to bidding on individual items. When the value of combinations of items can be greater than the value of the individual items separately, the combinatorial auction can lead to better outcomes. For example, if an investor is buying real estate properties for development, it may be beneficial to buy adjacent land lots rather than separated lots. Adjacent lots might afford the bidder more options for developing the properties and that might be worth extra beyond the values of the individual lots themselves. Combinatorial auctions have been used previously (e.g., by the Federal Communications Commission in 1993 to sell electromagnetic spectra), but only in specialized settings and with special bidding rules in place (e.g., bids are only allowed in fixed bidding rounds). Our research explores auction and bidder performance using a more common bidding setup; specifically, we allow continuous bidding with bidders able to come and go as they please. This is the kind of auction that is more familiar to the general public and would make the combinatorial auction an option for use in the general consumer marketplace. We investigate the economic performance, the user acceptance, and the bidding strategies that bidders use in these auctions. We also explore different types of auction interfaces with varying types of information feedback to see how the different levels of feedback affect bidder’s actions and outcomes. Our studies found that, with proper feedback, these auctions might be useable in the consumer setting. In terms of economic performance, our findings indicate that the information feedback plays a major role in influencing the economic outcomes of combinatorial auctions and provides insights on how the nature of feedback can influence the economic outcomes of this potentially complex bidding mechanism. Regarding behavior, we found three general and stable bidding strategies that are used, to varying degrees, across different types of feedback that impact the economic outcomes of the auction. Finally, we found that the bidder’s acceptance of the new auction mechanism was favorably sensitive to the information feedback provided. Overall, the results are favorable in supporting the potential of combinatorial auctions as a user-acceptable market mechanism for the general public with appropriate feedback. Our studies also serve as a baseline for learning more about how such auctions behave, e.g., with increasing complexity of the auctions or with different, more advanced levels of feedback provided.
