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Spiteful Auctions

Spiteful Bidding in Sealed-Bid Auctions

This paper explores what happens when bidders in an auction are spiteful. That is, bidders derive value from their success relative to their competitors. Such scenarios can occur in competitive situations, closed markets, or more generally when the loss of a competitor will likely lead to future gains. For example, consider the case when bidders in a sequential multi-item auction each have a fixed amount of money to spend. A spiteful bidder would want to drive up the price other bidders will pay for an item in order to minimize the profit of their competitors on that current item, and also to maximize the spiteful bidder’s profit on a future bid as their competitor will have less capacity to compete. This paper continues to show that the standard Nash Equilibrium and expected outcomes used in auctions only works in edge cases: when everyone is the standard self interested bidder or everyone is a completely malicious (no interest in personal profit).

In class we learned about Game Theory and Nash Equilibrium as it is applied to the regular 1st price and second priced sealed bid. It was concluded that the optimal bidding strategy in each case was to bid the maximum value that still produced a profit to the individual. Case analysis proved this. However, in a multi-item auction or in a competitive scenario, this paper argues there are alternative Nash Equilibrium strategies for a spiteful bidder.



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