On bidding for a fixed number of items in a sequence of auctions

We consider the problem of a firm (“the buyer”) that must acquire a fixed number (L) of items. The buyer can acquire these items either at a fixed buy-it-now price in the open market or by participating in a sequence of N > L auctions. The objective of the buyer is to minimize his expected total cost for acquiring all L items. We model this problem as a Markov Decision Process and establish monotonicity properties for the optimal value function and the optimal bidding strategies.

► Buyer acquires a fixed number of items by participating in a sequence of auctions.
► Item can also be bought outright at a high fixed price.
► Objective is to minimize the total expected cost.
► Markov Decision Process is used to model the problem.
► Monotonicity properties of the optimal bid are established.