Abstract:

We present a simple auction mechanism which extends the second-price auction with reserve and is truthful in expectation. This mechanism is particularly effective in private value environments where the distribution of valuations are irregular. Bidders can “buy-it-now”, or alternatively “takea- chance” where the top d bidders are equally likely to win. The randomized take-a-chance allocation incentivizes high valuation bidders to buy-it-now. We show that for a large class of valuations, this mechanism achieves similar allocations and revenues as Myerson’s optimal mechanism, and outperforms the second-price auction with reserve. In addition, we present an evaluation of bid data from Microsoft’s AdECN platform. We find the valuations are irregular, and counterfactual experiments suggest our BINTAC mechanism would improve revenue by 11% relative to an optimal second-price mechanism with reserve.

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