Simulation of sequential auction markets using priced options to reduce bidder exposure

This paper studies the benefits of using priced options for solving the exposure problem that bidders with valuation synergies face in sequential auctions. We consider a model in which complementary-valued items are auctioned sequentially by different sellers, who have the choice of either selling their good directly or through a priced option, after fixing its exercise price. We analyze this model from a decision-theoretic perspective and we show, for a setting where the competition is formed by local bidders, that using options can increase the expected profit for both buyers and sellers. We then perform a comprehensive experimental analysis of our mechanism for different market settings, both with a single synergy bidder, as well as with multiple synergy bidders are active simultaneously. By comparison to our previous work [18, 17], this paper does not focus on analytical results and detailed proofs for the theorems (which are comprehensively reported in Mous et. al. '08 [18]), but it does give more detailed experimental results than reported in previous wok.