Japanese Auction

Published by Mario Oettler on

In a Japanese auction, the price starts low. All participants raise their hands. Then, the price starts increasing in small steps. Every participant that doesn’t want to pay the price lowers his hand. Once a participant lowers his hand, he is not allowed to continue in the bidding process. The last participant who has his hand up receives the item and pays the last price.

The optimal strategy for the participants is to wait until the price reaches the willingness to pay and then leave the auction.

The effect here is that every participant reveals his willingness to pay truthfully. The only exception is the winner, where it is not clear how much he would have been willing to pay.

Bid open/sealedOpen
Bids increase or decreaseBids increase
Bid orderPrice increases
WinnerBidder with the highest bid
Final pricePrice of the highest bid
End of auctionFirst participant bids
StrategyBid until willingness to pay