Auction

Question 1

What are the different types of transactions?

Answer 1

1. Bargaining: 1 potential buyer and 1 potential seller.
2. Auctions: 1 buyer and multiple sellers OR 1 seller and multiple buyers.
3. Multiple buyers and multiple sellers: Markets, Double auctions.

Question 2

What are the different concepts of auctions? Explain them all.

Answer 2

• Private value auction
  
  • when the items have no value to others, and so
    cannot be resold.
• Common or public value auction
  
  • when goods can be resold to others, and so there are
    common values.
• Correlated value auction
  
  • A mixture of both e.g. auctions of paintings and
    stamps.

Question 3

What are some advantages of auction market places for sellers?

Answer 3

• low marketing cost
• sellers meet many potential customers on the auction
  sites
• there is a market for almost everything
• economies of scale

Question 4

what are the advantages of auction market places for buyers?

Answer 4

• a wide range of products
• not much time required
• chance of bargain buy
• offers of products that are hard to find

Question 5

Name the different types of auctions and how they are different?

Answer 5

• English Auction :
  
  • Each bid must be higher than previous bid.
  • Last bidder wins, pays last bid.
• Japanese Auction :
  
  • Prices rises, bidders drop out when price is too high.
  • Last bidder wins at price of last dropout.
• Dutch Auction :
  
  • Price drops until someone takes the item at that price.
• Sealed-bid Auctions :
  
  • Each bidder submits a bid in an envelope.
  • Auctioneer opens the envelopes, highest bid wins
    
    • First- price sealed-bid auction: winner pays own bid.
    • Second-price sealed-bid: winner pays 2nd highest bid.
• All-pay Auctions :
  
  • All bidders must pay their bids regardless of whether
    they win or not.

Question 6

Explain what a Vickrey Auction is?

Answer 6

• The auction proceeds either by English or by sealed bid protocol.
• This protocol reduces the extent of the winner’s curse.
  
  • the amount paid by the winner is equal to the price
    the winner would get if he/she sold it immediately
    in another auction.
• Here, the strategy for the bidders is to bid truthfully.

Question 7

What is the winner’s curse and what are some case studies for it?

Answer 7

They may bid much more for the item than anyone else.

New Zealand mobile licences:
- In a mobile licence auction in New Zealand in 1994, the top two bids were:

Winner: $7 million

Second - highest: $5,000

Question 8

What is a double auction?

Answer 8

Double auctions are used when there are many sellers and many buyers.

Both potential buyers and sellers make offers.

examples: stock market, markets for financial products.

Question 9

How does a double auction work?

Answer 9

In these markets, the bids usually proceed in a series of rounds.

The auction is usually managed by an auctioneer.

Question 10

How does the one clearing algorithm work?

Answer 10

1. Sorts the bids into two lists:
   
   • buyers are listed in descending order by price.
   • sellers are listed in ascending order by price.
2. The buyers with the highest bid price is matched to the seller with the lowest ask price.
   
   • if the bid price is above the ask price, then a trade is
     made, otherwise is not.
   • the unit price for contract is set at the average of the
     two prices.
   • the quantity is set at the minimum of the demanded
     and supplied quantities.
3. The process is repeated with the next highest buyer and the next lowest seller, until all trades are completed.

Question 11

What is the Monotonic Concession Protocol?

Answer 11

The MCP is a negotiation between two parties.

Each round, the two participants each make a proposal simultaneously:

• If the two proposals overlap, then the protocol terminates.
• They’ve struck a deal.

No match? move on to the next round, make new offers..

Question 12

What is the Zeuthen Strategy?

Answer 12

The Zeuthen concession strategy is for a participant deciding what offer to make in each round.

Uses the idea of highest UTILITY when bidding.

Not Pareto efficient.

Question 13

When would a deal be Pareto-optimal?

Answer 13

A deal is Pareto-optimal if any other deal makes at least one participant worse off.