Auctions

Question 1

a) What are auctions?
b) In what way are auctions thought to be efficient?
c) What two main types of auctions are there?

Answer 1

a)
Auction is a mechanism for allocating scarce resources to agents. The resources must be a scarce, otherwise the solution is trivial. The resource must also be desired by more than one agent.
b)
They allocate good to the one that values or claims to need it most.
c)
Single item auction and bundle/combinatorial item auction

Question 2

Explain the English auction and motivate optimal strategy

Answer 2

English auction is a first bid, open cry, ascending auction
- Optimal strategy for the English auction is to bid a bit more than the current bid until you meet you valuation function

Question 3

Explain the Dutch auction

Answer 3

The Dutch auction is first priced, open cry, descending auction

Question 4

Explain the first-price, sealed-bid auction and motivate optimal strategy

Answer 4

This auction is where participants only get to bid once and don’t see other’s bids.
Optimal strategy of the bidder is to bid a little less than the true
valuation

Question 5

Explain the Vickrey auction and motivate optimal strategy

Answer 5

Vickrey auction is second priced, sealed bid auction.
Optimal strategy in Vickrey auction is for the agent to bid the true valuation of the good, making it immune to strategic manipulation.
The only downside is that the auctioneer gets less for the good (because second price).

Question 6

What is winner’s curse?

Answer 6

The winners curse is the fact that you won means you have evaluated the good higher than everyone else. This can lead to doubt about the true valuation and you also know than the difference between your bid and the second highest bid is money that could have been saved.

Question 7

a) What do we mean by combinatorial auctions?
b) How do we solve this combinatorial problem?
c) How do we represent complex bids?

Question 8

Explain the VCG-mechanism