The Effects of Latency on a Progressive Second-Price Auction

TL;DR

This paper investigates how latency and asynchronous factors influence the equilibria and revenue stability in a decentralized progressive second-price auction, proposing algorithms to optimize revenue and analyze utility predictability.

Contribution

It introduces an algorithm for minimal-revenue equilibrium states and demonstrates that setting reserve prices below clearing stabilizes revenue while maintaining efficiency.

Findings

Latency and randomness affect equilibrium stability.

Reserve prices below clearing improve revenue stability.

Buyer utilities remain predictable despite bid unpredictability.

Abstract

The progressive second-price auction of Lazar and Semret is a decentralized mechanism for the allocation and real-time pricing of a divisible resource. Our focus is on how delays in the receipt of bid messages, asynchronous analysis by buyers of the market and randomness in the initial bids affect the $\varepsilon$-Nash equilibria obtained by the method of truthful $\varepsilon$-best reply. We introduce an algorithm for finding minimal-revenue equilibrium states and then show that setting a reserve price just below clearing stabilizes seller revenue while maintaining efficiency. Utility is of primary interest given the assumption of elastic demand. Although some buyers experienced unpredictability in the value and cost of their individual allocations, their respective utilities were predictable.