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ECO 436 . Auction Theory . Four Basic Types of Auctions. Ascending-bid auction (open, oral or English auction) Descending-bid auction (Dutch Auction) First-price sealed-bid auction Second-price sealed-bid auction (Vickrey Auction). Key Feature – Asymmetric Information.

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eco 436

ECO 436

Auction Theory

four basic types of auctions
Four Basic Types of Auctions
  • Ascending-bid auction (open, oral or English auction)
  • Descending-bid auction (Dutch Auction)
  • First-price sealed-bid auction
  • Second-price sealed-bid auction (Vickrey Auction)
key feature asymmetric information
Key Feature – Asymmetric Information
  • Private-value model – each bidder knows how much he/she values the object but value is private to him/her.
  • Pure common value model – actual value is the same for everyone but bidders have different private information about what that value actually is.
winner s curse
Winner’s Curse
  • You win only by exceeding others’ maximum valuation of the object
  • Overpay
revenue equivalence theorem vickrey
Revenue Equivalence Theorem (Vickrey)
  • Assume each of a given number of risk-neutral potential buyers of an object has a privately known signal independently drawn from a common, strictly increasing, atomless distribution. Then any auction mechanism in which (i) the object always goes to the buyer with the highest signal, and (ii) any bidder with the lowest-feasible signal expects zero surplus, yields the same expected revenue (and results in each bidder making the same expected payment as a function of her signal).
results
Results
  • Applies to private-value and common-value models
  • All standard auctions yield the same expected revenue under the stated conditions
practical issues in auction design
Practical Issues in Auction Design
  • Collusion
  • Attracting many bidders
    • Winner’s curse
    • Predation
  • Reserve Price – minimum amount the winner is required to pay
  • Loopholes to game the auction
  • Market structure
good auction design
Good Auction Design
  • Good auction design is not “one size fits all” and must be sensitive to the details of the context
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