1- Simple auctions Flashcards
What are 3 scenarios conducive to auctions?
-Agents have little knowledge of fair price
-Scarcity/fixed supply e.g. unique painting
-Low transaction frequency
What are the 3 defining features of an auction?
-Bidding format rules
-Bidding process rules
-Price and allocation rules
What are Bidding format rules?
Form of bids e.g. price only or quantity only etc
What are Bidding process rules?
Closing/timing rules, available information etc
What are Price and allocation rules?
Final price(s) and quantities, winning bidders
What is a bidder’s valuation?
The highest price they are willing to pay
What is a Private value model?
If bidders’ signals are independent from each other and a bidder’s valuation only depends on their signal
What is a Common value model?
Bidder’s don’t get the same signal but true valuation is the same
What is an Interdependent value model?
Valuation is the sum of a private and common part
What is the payoff for winning an auction?
The surplus: Valuation - Price paid
What is the payoff for losing an auction?
0
What is the social surplus from an auction?
The winner’s valuation
What is an Ascending auction?
The price starts low and goes up until a winner is declared
What are English outcry auctions?
Auctions where only bidders announce prices
Who wins English outcry auctions?
The highest bidder
What are English auctions?
Only auctioneer announces prices, all active bidders say whether they accept or reject price
Who wins English auctions?
When only one bidder accepts the price, if bidders stop at same price there is a random draw
What is the Ticking price in an auction?
The amount by which the price has to go up
What is a bid in an English auction?
Bidders price target, the price at which they stop pressing the button
What is the dominant strategy in an English auction?
Truthful bidding
What can be observed from the bidders at the end of an English auction?
The true valuation of all bidders except the winner- you will never know when they’d have stopped
Describe a Vickrey auction (second price sealed bid)
Bidders simultaneously submit secret prices to auctioneer, winner is the highest bidder but they pay the 2nd highest price
What is the main difference between Vickrey and English auctions?
Vickrey auction is a Strategic form game: bidders can never learn the bids of their opponents.
English auction is an Extensive form game: bidders may observe bids of opponents
What are 2 main reasons English outcry auctions are more difficult to analyse?
-Multi-step game, not a one-shot game
-Knowledge of previous bids influences subsequent bidding
Why is bidding one’s true valuation optimal in a second price sealed bid auction?
Because if the second price is higher than one’s valuation but lower than their fake bid, the winner will pay more than the good is worth to them
