An Optimal Strategy for Sellers in an Online Auction

Abstract

We consider an online auction setting where the seller attempts to sell an item. Bids arrive over time and the seller has to make an instant decision to either accept this bid and close the auction or reject it and move on to the next bid, with the hope of higher gains. What should be the seller's strategy to maximize gains? Using techniques from convex analysis, we provide an explicit closedform optimal solution (and hence a simple optimum online algorithm) for the seller. Our methodology is attractive to online auction systems that have to make an instant decision, especially when it is not humanly possible to evaluate each bid individually, when the number of bids is large or unknown ahead of time, and when the bidders are unwilling to wait. © 2002, ACM. All rights reserved.