This paper studies auctions in a setting where the different bidders arrive at different times and the auction mechanism is required to make decisions about each bid as it is received. Such settings occur in computerized auctions of computational resources as well as in other settings. We call such auctions, on-line auctions. We first characterize exactly on-line auctions that are incentive compatible, i.e. where rational bidders are always motivated to bid their true valuation. We then embark on a competitive worst-case analysis of incentive compatible on-line auctions. We obtain several results, the cleanest of which is an incentive compatible on-line auction for a large number of identical items. This auction has an optimal competitive ratio, both in terms of seller's revenue and in terms of the total social efficiency obtained.
Bibliographical noteFunding Information:
A preliminary version appeared in the Proceedings of the Second ACM conference on Electronic Commerce (EC’00). Supported by grants from the Israeli Ministry of Science and the Israeli Academy of Sciences. E-mail addresses: email@example.com (R. Lavi), firstname.lastname@example.org (N. Nisan).