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Andrew Nizamianand
Jeff Herman
Auctions with Budget Constraints in the Xbox Live
Marketplace
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20 million membersUses
Games on DemandExclusive ContentVideo StoreIndie GamesZune
Points sold in discrete packagesApproximately 80 points = $1
Overview
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Let us impose a sealed-bid auction where participants have affiliated valuations and private budget constraints
Why?Xbox Live points are non-redeemablePeople have leftover points, since purchases are
made in discrete packagesPlays into the gamer mentalityMore profitable than the current ‘first-come-first-
serve’ basis for new content release
Why Auction?
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Find the auction model most profitable to the Xbox Live Marketplace
Find the optimal bidding strategy for the consumer
Objective
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The LiteratureAndelman, Nir, and Yishay Mansour. "Auctions with Budget
Constraints." CiteSeerX. School of Computer Science, Tel-Aviv University, 23 Dec. 2003. Web. 6 Nov. 2011. <http://citeseer.ist.psu.edu/viewdoc/summary?doi=10.1.1.101.5408>. 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. <http://research.microsoft.com/en-us/um/people/borgs/papers/
budget.pdf>. Kotowski, Maciej H. "First-Price Auctions with Budget Constraints." Department of Economics, University of California, Berkeley (2011). Web. 5 Nov. 2011. <http://sticerd.lse.ac.uk/seminarpapers/et24022011.pdf>.
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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
Hard budget constraints
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Two-part questionDetermine which model maximizes profit for Xbox
LiveInvestigate which strategies are best for agents
within a given modelAnswer using computational simulation
Evaluate performance of bidding strategies/heuristics
Test multiple auction environmentse.g. First-price vs. Nth-price
Implement novel strategies and/or strategies found in literature
Experiment
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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 auctionFor single goods, a standard sealed-bid second-
price auction should be the most effectiveCaveat: Xbox Live doesn’t 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 Winner’s Curse
Expected Results
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Simulation with human participants, and qualitative measures of valuation
Simulations (digitized and real) allowing for repurchasing periods between auctions
Further Research?
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Thank you!