Auctions with Budget Constraints in the Xbox Live Marketplace

Andrew Nizamianand

Jeff Herman

Auctions with Budget Constraints in the Xbox Live

Marketplace

20 million membersUses

Games on DemandExclusive ContentVideo StoreIndie GamesZune

Points sold in discrete packagesApproximately 80 points = $1

Overview

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?

Find the auction model most profitable to the Xbox Live Marketplace

Find the optimal bidding strategy for the consumer

Objective

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>.

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

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

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

Simulation with human participants, and qualitative measures of valuation

Simulations (digitized and real) allowing for repurchasing periods between auctions

Further Research?

Thank you!