1- Simple auctions

Question 1

What are 3 scenarios conducive to auctions?

Answer 1

-Agents have little knowledge of fair price
-Scarcity/fixed supply e.g. unique painting
-Low transaction frequency

Question 2

What are the 3 defining features of an auction?

Answer 2

-Bidding format rules
-Bidding process rules
-Price and allocation rules

Question 3

What are Bidding format rules?

Answer 3

Form of bids e.g. price only or quantity only etc

Question 4

What are Bidding process rules?

Answer 4

Closing/timing rules, available information etc

Question 5

What are Price and allocation rules?

Answer 5

Final price(s) and quantities, winning bidders

Question 6

What is a bidder’s valuation?

Answer 6

The highest price they are willing to pay

Question 7

What is a Private value model?

Answer 7

If bidders’ signals are independent from each other and a bidder’s valuation only depends on their signal

Question 8

What is a Common value model?

Answer 8

Bidder’s don’t get the same signal but true valuation is the same

Question 9

What is an Interdependent value model?

Answer 9

Valuation is the sum of a private and common part

Question 10

What is the payoff for winning an auction?

Answer 10

The surplus: Valuation - Price paid

Question 11

What is the payoff for losing an auction?

Answer 11

0

Question 12

What is the social surplus from an auction?

Answer 12

The winner’s valuation

Question 13

What is an Ascending auction?

Answer 13

The price starts low and goes up until a winner is declared

Question 14

What are English outcry auctions?

Answer 14

Auctions where only bidders announce prices

Question 15

Who wins English outcry auctions?

Answer 15

The highest bidder

Question 16

What are English auctions?

Answer 16

Only auctioneer announces prices, all active bidders say whether they accept or reject price

Question 17

Who wins English auctions?

Answer 17

When only one bidder accepts the price, if bidders stop at same price there is a random draw

Question 18

What is the Ticking price in an auction?

Answer 18

The amount by which the price has to go up

Question 19

What is a bid in an English auction?

Answer 19

Bidders price target, the price at which they stop pressing the button

Question 20

What is the dominant strategy in an English auction?

Answer 20

Truthful bidding

Question 21

What can be observed from the bidders at the end of an English auction?

Answer 21

The true valuation of all bidders except the winner- you will never know when they’d have stopped

Question 22

Describe a Vickrey auction (second price sealed bid)

Answer 22

Bidders simultaneously submit secret prices to auctioneer, winner is the highest bidder but they pay the 2nd highest price

Question 23

What is the main difference between Vickrey and English auctions?

Answer 23

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

Question 24

What are 2 main reasons English outcry auctions are more difficult to analyse?

Answer 24

-Multi-step game, not a one-shot game
-Knowledge of previous bids influences subsequent bidding

Question 25

Why is bidding one’s true valuation optimal in a second price sealed bid auction?

Answer 25

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