Auctions with Budget Constraints in the Xbox Live Marketplace

Auctions with Budget Constraints in the Xbox Live Marketplace

Auctions with Budget Constraints in the Xbox Live Marketplace Andrew Nizamian and Jeff Herman Overview

20 million members Uses Games on Demand Exclusive Content Video Store Indie Games Zune

Points sold in discrete packages Approximately 80 points = $1 Why Auction? Let us impose a sealed-bid auction where participants have affiliated valuations and private budget constraints

Why? Xbox Live points are non-redeemable People have leftover points, since purchases are made in discrete packages Plays into the gamer mentality More profitable than the current first-come-firstserve basis for new content release

Objective Find the auction model most profitable to the Xbox Live Marketplace Find the optimal bidding strategy for the consumer The Literature

Andelman, Nir, and Yishay Mansour. "Auctions with Budget Constraints." CiteSeerX. School of Computer Science, Tel-Aviv University, 23 Dec. 2003. Web. 6 Nov. 2011. . Borgs, Christian, Jennifer Chayes, Nicole Immorlica, Mohammad

Mahdian, and Amin Saberi. "Multi-unit Auctions with Budget- Constrained Bidders." Http://research.microsoft.com/. Microsoft, 16 Oct. 2001. Web. 6 Nov. 2011. . Kotowski, Maciej H. "First-Price Auctions with Budget Constraints." Department of Economics, University of

California, Berkeley (2011). Web. 5 Nov. 2011. . Hard budget constraints These introduce two competing effects on bidding The direct effect: Depression of bids as participants hit their spending

limit The strategic effect: Aggressive bidding from participants with larger budgets Experiment

Two-part question Determine which model maximizes profit for Xbox Live Investigate which strategies are best for agents within a given model Answer using computational simulation Evaluate performance of bidding

strategies/heuristics Test multiple auction environments e.g. First-price vs. Nth-price Implement novel strategies and/or strategies found in literature

Expected Results We anticipate that the most profitable auction scheme for selling multiple units of a good (e.g., a limited release of a map-pack) will be a sealed-bid Nth-price auction For single goods, a standard sealed-bid second-

price auction should be the most effective Caveat: Xbox Live doesnt profit from the points being spent, they profit from the points being bought We expect the most effective bidding strategy will be aggressive bidding with a large initial

budget Side Note: Perception of the Winners Curse Further Research? Simulation with human participants, and qualitative measures of valuation Simulations (digitized and real) allowing for

repurchasing periods between auctions Thank you!

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