The Drunkard’s Auction

Draft of 2004.06.18

May include: ideas&c.

A Dutch flower auction runs (roughly) like this: The price for a lot starts at a high number. At the beginning of the auction, a large clock on the wall begins counting down—quickly—from the high price to lower and lower prices. The first bidder to stop the clock agrees to pay the currently-shown price for the lot.

There are some details I’ve elided, like the fact that there are often multiple items in a lot and thus bids are being made on portions, but let’s ignore that.

I’ve been looking for software to sell things on my websites using this sort of format: I’d start a book, for example, at $50, and then every day the price would decrement by $1. Whoever sent an email, or maybe sent money via PayPal, would get the thing. Simple, efficient, and nice.

So far, I can’t find any. The only stuff I can find is “reverse” auction modules for PHPAuction and the like, which are not the same as Dutch flower-style auctions. And of course eBay has redefined the “Dutch” auction to suit their own metaphor, a very different animal indeed.

Well, anyway, you know me by now. I had to break the assumptions of the elegant, supremely efficient marketplace a Dutch flower-style auction provides. Me, I can’t leave well enough alone.

Thus: the Drunkard’s auction.

  • Before the beginning of the sale, the Seller of a Lot specifies a minimum price he is willing to accept for the Lot, a maximum price that seems reasonable, and a starting price.
  • The Lot is offered openly on the market at the starting price.
  • Periodically, the price of the Lot changes randomly, rising or falling by a fixed (multiplicative) factor, but bounded on the bottom by the minimum price and bounded on the top by the maximum price.
  • Buyers may purchase the Lot at any time: first-come, first-served.

Suppose the multiplicative factor is 9%. So if we start a lot at $77 with a floor of $30 and a ceiling of $120, then the asked price in the first period will be $77, in the second period it may be $70.07 or $83.93, in the third period it will be one of {$63.76, $76.38 (twice as often), $91.48}, and so forth.

Not as efficient as the decrementing Dutch flower-style auction, is it? Discuss, if it seems worthy of discussion: strategies for buyer and seller (if any), how it might function in markets such as blogs in which customers are not sitting there anxiously staring at clocks on the wall with their fingers poised over buttons, and whether there might be more reasonable methods of walking (such as additive increments, or weighted probabilities of up- and down-ticks depending on where in the price range the current price sits.

[Frankly, I lied when I said I was just suggesting this to break the assumptions and see what happens—I think this is an improvement over the decremented version exactly because of the asynchronous and low-volume market online sales experience. Plus it would appeal to market timers, who I suspect tend to buy more.)

I’m curious to know whether there are sniping strategies in this or the Dutch flower-style sale, and whether these might be offset by making the length of each period an i.i.d. random variable as well.

It also strikes me as something a cron job and a PayPal storefront might manage to run handily. Off to check that….