Bayesian Auctions with Friends and Foes

TL;DR

This paper explores how social relationships like friendship and rivalry influence bidding strategies in auctions, modeling utilities that depend on others' outcomes within a networked setting.

Contribution

It introduces a novel utility model for bidders influenced by social ties, extending auction theory to account for altruism and spite in networked environments.

Findings

Utility models incorporating social ties alter bidding strategies.

Social relationships significantly impact auction outcomes.

The model provides a framework for analyzing strategic behavior with friends and foes.

Abstract

We study auctions whose bidders are embedded in a social or economic network. As a result, even bidders who do not win the auction themselves might derive utility from the auction, namely, when a friend wins. On the other hand, when an enemy or competitor wins, a bidder might derive negative utility. Such spite and altruism will alter the bidding strategies. A simple and natural model for bidders' utilities in these settings posits that the utility of a losing bidder i as a result of bidder j winning is a constant (positive or negative) fraction of bidder j's utility.