Stochastic Modelling and Optimisation of Internet Auction Processes

Internet auctions are an attractive mechanism for the exchange of goods at a non-fixed price point. The operation of these auctions can be run under a variety of parameters. In this paper, we provide a theoretical analysis of fixed time forward auctions in cases where a single bid or multiple bids are accepted in a single auction. A comparison of the economic benefits and the corresponding buyer and seller surpluses between the auctions where a single bid is accepted and the auctions where multiple bids are accepted is made. These models are verified through systematic simulation experiments, based on a series of operational assumptions, which characterise the arrival rate of bids, as well as the distribution from which the private values of buyers are sampled. Decision rules for optimising surplus under different auction fee structures are also given.