Author(s)

Junmin SHI, Ai-Chih CHANG

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This paper investigates the revenue and duration of a well-known hybrid oral auction (English auction and Dutch auction) that is extensively adopted in practice, for instance the Christie’s. Unlike sealed bid auction, oral auction is featured by its complexity of dynamic process. The bidding price varies as a stochastic time series. Therefore, the duration of oral auction as well as its revenue performs randomly. From the seller’s perspective, both the revenue and the duration are so important that extra attention and effort should be put on auction design. One of the most important issues is how to choose the starting bid price to maximize its revenue or minimize its duration. In this paper, the bidding process is decomposed into two phases: English auction (descending-bid) phase and the Dutch auction (ascending-bid) phase. For each phase, with the aid of Markov method, we derive the expected revenue and duration as a function of the starting bid. For an oral auction with a large number of bidder and each bidder behaves independently, we provide the limit results of the expected revenue and duration. The results of the auction model can be easily implemented in auction design.

Duration, Dutch Auction, English Auction, Oral Auction, Revenue

SHI, J. and CHANG, A. (2009) Revenue and Duration of Oral Auction. Journal of Service Science and Management, 2, 368-377. doi: 10.4236/jssm.2009.24044.