The Nearly Perfect Auctioneer: Cryptographic Protocols for Auctions and Bidding

Abstract

Huge amounts of valuable commodities, assets and rights are traded every day in various types of auctions. Some auctions — e.g. English and Dutch ones — have been practiced for a long time, whereas others — e.g. the sealed second-price or Vickrey auctions — are of relatively recent origin. We shall propose various methods for the implementation of these types of auctions in computer networks. The methods, which will be called protocols, are based on mathematical cryptography in general and on public-key cryptography, in particular. We show that some undesirable features of auctions can be avoided through the application of existing cryptographic protocols. Thus, for example, losing bids need not be made known to other bidders or the bid-taker.