Auctions as a Dynamic Pricing Mechanism for E-services

Increasing role of services in developed economies around the world combined with ubiquitous presence of computer networks and information technologies result in rapid growth of e-services. Markets for e-services often require flexible pricing to be efficient and therefore frequently use auctions to satisfy this requirement. However, auctions in e-service markets are recurring since typically e-services are offered repeatedly, each time for a specific time interval. Additionally, all e-services offered in an auction round must be sold to avoid resource waste. Finally, enough bidders must be willing to participate in future auction rounds to prevent a collapse of market prices. Because of these requirements, previously designed auctions cannot work efficiently in e-service markets. In this chapter, we introduce and evaluate a novel auction, called Optimal Recurring Auction (ORA), for e-services markets. We present also simulation results that show that, unlike the traditional auctions, ORA stabilizes the market prices and maximizes the auctioneer’s revenue in e-service markets.