Welcome and introduction
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welcome and introduction. auctions: theory, evidence, policy. Peter Bardsley. this workshop. second in a series of workshops prepared by the University of Melbourne for the VPS part of an ongoing capacity building partnership level is intermediate

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Welcome and introduction

welcome and introduction

auctions: theory, evidence, policy

Peter Bardsley


This workshop

this workshop

  • second in a series of workshops prepared by the University of Melbourne for the VPS

  • part of an ongoing capacity building partnership

  • level is intermediate

    • participation in previous workshop is desirable but not essential

    • we are aware that the audience is very mixed

    • if it starts to look complicated, hang in there – there will be something for everybody


The objectives

the objectives

  • to introduce and illustrate some of the basic ideas of auction theory

  • to show how these ideas can be tested, explored and refined in the laboratory

  • to show how these ideas are applied to policy design

  • to work in the simplest possible environment to illustrate these concepts

    • independent private values model

    • more complex environments (common values, asymmetric bidders, multiple objects, combinatorial and package auctions) will be mentioned briefly


Buying or selling

buying or selling?

  • auctions can be used to sell something, or to buy something

    • procurement auctions, sometimes called reverse auctions

  • the theory is completely symmetrical

  • we will usually talk about selling objects

    • the application to procurement auctions is immediate: just change some words around


What do we want allocation mechanisms to achieve

what do we want allocation mechanisms to achieve?

  • match buyers and sellers

  • price discovery / terms of trade

  • efficient allocation of resources

    • voluntary exchange makes both parties better off

    • are their any gains from trade that are missed?

      • is there any money left lying on the table?

    • speed, efficiency, transparency, low transaction costs

  • maximal revenue, if we are selling; minimal cost, if we are buying

  • robustness: the mechanism should work well in a range of environments


A variety of mechanisms

a variety of mechanisms

  • beauty parades, negotiated deals

  • unstructured pit markets

    • village market

    • some stock exchanges

  • intermediated markets

    • intermediary holds inventory, bears risk, stands between buyer and seller

    • stock exchange specialists, supermarkets, used car dealers

  • posted price markets

    • most shops

    • Sydney versus Melbourne house market

  • search markets

    • haggling in bazaars

    • job markets (executives, plumbers, ...)

  • auctions of many forms


Why study auctions

why study auctions?

  • wide range of design choices

  • tend to be highly efficient

  • well suited to situations with a single seller or a single buyer

  • can be shown to be optimal in many environments


First reactions

first reactions

  • what strategies did you follow when you were bidding?

    • what strategies do you think other people were following?

  • should you reveal your private information?

    • should you bid your full value?

    • can you rely on others being truthful?

  • which institutions are more profitable for the auctioneer?


How to get the most out of this workshop three key questions

how to get the most out of this workshop:three key questions

  • how does auction design affect behaviour?

    • how aggressively do participants bid?

  • how does auction design affect performance?

    • revenue raise

    • efficiency of allocation

  • when are apparently different institutions actually very similar?

    • when are apparently similar institutions actually very different?


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