Abstract for: Simulating an Auction Market: The Effect of the Number and Aggressiveness of Bidders
Economists have documented well their analytical approach to determining optimal pricing strategies and market efficiencies for a host of market types, including the spectrum of auction markets. While it is impressive and certainly yields “optimal” bidding strategies (for the given set of assumptions), the mathematics underlying these analyses does not necessarily reflect how actual participants in such markets make bidding decisions. This paper presents the results of a simulated sealed bid, first price, private value multi-round auction. Auction participants follow a relatively simple algorithm for determining their bid. The number of bidders and their determination to earn the item up for auction (their “aggressiveness”) is varied in order to explore the impact these parameters have on auction efficiency. The results show that both the number of bidders and their aggressiveness have dramatic impacts on both price and auction efficiency. The number of bidders is a factor in most analytical solutions. Aggressiveness, like other behavioral factors, is less common. While it informs auctioneers that having more bidders will generate higher prices and greater revenue, traditional analysis does not typically discuss bidder aggressiveness.