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Compact Bid Languages and Core Pricing in Large Multi-item Auctions

Author

Listed:
  • Andor Goetzendorff

    (Department of Informatics, Technische Universität München, 85748 Garching, Germany)

  • Martin Bichler

    (Department of Informatics, Technische Universität München, 85748 Garching, Germany)

  • Pasha Shabalin

    (Department of Informatics, Technische Universität München, 85748 Garching, Germany)

  • Robert W. Day

    (Operations and Information Management, University of Connecticut, Storrs, Connecticut 06269)

Abstract
We introduce an auction design framework for large markets with hundreds of items and complex bidder preferences. Such markets typically lead to computationally hard allocation problems. Our new framework consists of compact bid languages for sealed-bid auctions and methods to compute second-price rules such as the Vickrey–Clarke–Groves or bidder-optimal, core-selecting payment rules when the optimality of the allocation problem cannot be guaranteed. To demonstrate the efficacy of the approach for a specific, complex market, we introduce a compact bidding language for TV advertising markets and investigate the resulting winner-determination problem and the computation of core payments. For realistic instances of the respective winner-determination problems, very good solutions with a small integrality gap can be found quickly, although closing the integrality gap to find marginally better solutions or prove optimality can take a prohibitively large amount of time. Our subsequent adaptation of a constraint-generation technique for the computation of bidder-optimal core payments to this environment is a practically viable paradigm by which core-selecting auction designs can be applied to large markets with potentially hundreds of items. Such auction designs allow bidders to express their preferences with a low number of parameters, while at the same time providing incentives for truthful bidding. We complement our computational experiments in the context of TV advertising markets with additional results for volume discount auctions in procurement to illustrate the applicability of the approach in different types of large markets.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2076 . This paper was accepted by Lorin Hitt, information systems.

Suggested Citation

  • Andor Goetzendorff & Martin Bichler & Pasha Shabalin & Robert W. Day, 2015. "Compact Bid Languages and Core Pricing in Large Multi-item Auctions," Management Science, INFORMS, vol. 61(7), pages 1684-1703, July.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:7:p:1684-1703
    DOI: 10.1287/mnsc.2014.2076
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    References listed on IDEAS

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    Cited by:

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    2. Karaenke, Paul & Bichler, Martin & Merting, Soeren & Minner, Stefan, 2020. "Non-monetary coordination mechanisms for time slot allocation in warehouse delivery," European Journal of Operational Research, Elsevier, vol. 286(3), pages 897-907.
    3. Bichler, Martin & Merting, Sören, 2018. "Truthfulness in advertising? Approximation mechanisms for knapsack bidders," European Journal of Operational Research, Elsevier, vol. 270(2), pages 775-783.
    4. Minghui Lai & Weili Xue & Qian Hu, 2019. "An Ascending Auction for Freight Forwarder Collaboration in Capacity Sharing," Transportation Science, INFORMS, vol. 53(4), pages 1175-1195, July.
    5. Martin Bichler & Johannes Knörr & Felipe Maldonado, 2023. "Pricing in Nonconvex Markets: How to Price Electricity in the Presence of Demand Response," Information Systems Research, INFORMS, vol. 34(2), pages 652-675, June.
    6. Paul Karaenke & Martin Bichler & Stefan Minner, 2019. "Coordination Is Hard: Electronic Auction Mechanisms for Increased Efficiency in Transportation Logistics," Management Science, INFORMS, vol. 65(12), pages 5884-5900, December.
    7. Martin Bichler & Paul Milgrom & Gregor Schwarz, 2023. "Taming the Communication and Computation Complexity of Combinatorial Auctions: The FUEL Bid Language," Management Science, INFORMS, vol. 69(4), pages 2217-2238, April.

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