Auctions Flashcards
What is a second-price auction?
one where the highest bidder wins but pays the second-highest bid.
What is the dominant strategy in a second-price auction?
For each bidder to bid their true valuation of the item
How does a first-price auction work?
The highest bidder wins the item and pays the amount they bid.
Why is the bidding strategy in first-price auctions more complex?
In first-price auctions, bidders must balance the risk of losing by bidding too low against the risk of the winner’s curse, which involves bidding too high and overpaying
What is an optimal auction?
An optimal auction is designed to maximize the seller’s expected revenue, taking into account bidders’ private information and strategic responses.
What complicates auction analysis when multiple units of an item are auctioned?
Bidding involves a schedule for different quantity levels, complicating the analysis of the highest bidder and the payment required.
What is the revenue equivalence theorem?
It suggests that under certain conditions, various auction formats yield the same expected revenue for the seller.
What assumption is often made about bidders in auction theory?
It is often assumed that bidders are independent and have identical information and preferences, simplifying the analysis.
What are two popular types of auctions?
First-price and second-price sealed-bid auctions, along with their variations, descending-bid and ascending-bid auctions.
