Abstract

https://ssrn.com/abstract=2444495
 


 



Dynamic Reserve Prices for Repeated Auctions: Learning from Bids


Yash Kanoria


Columbia Business School - Decision Risk and Operations

Hamid Nazerzadeh


University of Southern California - Marshall School of Business

July 1, 2014


Abstract:     
A large fraction of online advertisements are sold via repeated second price auctions. In these auctions, the reserve price is the main tool for the auctioneer to boost revenues. In this work, we investigate the following question: Can changing the reserve prices based on the previous bids improve the revenue of the auction, taking into account the long-term incentives and strategic behavior of the bidders? We show that if the distribution of the valuations is known and satisfies the standard regularity assumptions, then the optimal mechanism has a constant reserve. However, when there is uncertainty in the distribution of the valuations and competition among the bidders, previous bids can be used to learn the distribution of the valuations and to update the reserve prices. We present a simple approximately incentive-compatible and optimal dynamic reserve mechanism that can significantly improve the revenue over the best static reserve in such settings.

Number of Pages in PDF File: 26

JEL Classification: D44


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Date posted: June 9, 2014 ; Last revised: August 22, 2014

Suggested Citation

Kanoria, Yash and Nazerzadeh, Hamid, Dynamic Reserve Prices for Repeated Auctions: Learning from Bids (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2444495 or http://dx.doi.org/10.2139/ssrn.2444495

Contact Information

Yash Kanoria
Columbia Business School - Decision Risk and Operations ( email )
New York, NY
United States

Hamid Nazerzadeh (Contact Author)
University of Southern California - Marshall School of Business ( email )
Bridge Memorial Hall
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~nazerzad/

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