Optimal strategy against straightforward bidding in clock auctions

TL;DR

This paper models an optimal bidding strategy in clock auctions, specifically for 5G spectrum, using a POMDP approach that accounts for unknown competitor valuations and strategies, ensuring the bidder's expected gain is robust.

Contribution

It introduces a POMDP-based method to determine optimal bidding strategies in clock auctions with unknown competitor valuations and strategies, avoiding complex belief-space computations.

Findings

Optimal strategy derived using POMDP framework

Expected gain remains stable even if competitors deviate from straightforward bidding

Numerical experiments compare strategic bidder value with fully informed scenarios

Abstract

We study a model of auction representative of the 5G auction in France. We determine the optimal strategy of a bidder, assuming that the valuations of competitors are unknown to this bidder and that competitors adopt the straightforward bidding strategy. Our model is based on a Partially Observable Markov Decision Process (POMDP). This POMDP admits a concise statistics, avoiding the solution of a dynamic programming equation in the space of beliefs. In addition, under this optimal strategy, the expected gain of the bidder does not decrease if competitors deviate from straightforward bidding. We illustrate our results by numerical experiments, comparing the value of the bidder with the value of a perfectly informed one.