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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?.

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Auctions with Budget Constraints in the Xbox Live Marketplace

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

  2. Overview • 20 million members • Uses • Games on Demand • Exclusive Content • Video Store • Indie Games • Zune • Points sold in discrete packages • Approximately 80 points = $1

  3. 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-first-serve’ basis for new content release

  4. Objective • Find the auction model most profitable to the Xbox Live Marketplace • Find the optimal bidding strategy for the consumer

  5. The Literature Andelman, Nir, and YishayMansour. "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 AminSaberi. "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>.

  6. 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

  7. 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

  8. 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 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

  9. Further Research? • Simulation with human participants, and qualitative measures of valuation • Simulations (digitized and real) allowing for repurchasing periods between auctions

  10. Thank you!

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