I Describe types of auctions and calculate the winning prices of an auction Flashcards
A common value auction is an auction for a good (e.g., rights to mineral extraction) which has the same value to all bidders, even though this value may not be known with certainty at the time of the auction. The highest bidder may be the one who most overvalues the item (winner’s curse). A private value auction is an auction for a good (e.g., Van Gogh painting) for which the value is different to each bidder. Bidders are not expected to bid amounts greater than their private value of the item.
Auction
An alternative to markets for determining an equilibrium price
Common Value Auction
Value of the item to be auctioned is the same to all bidders who do not know the value of the item (oil lease auctions: Value of oil extraction is same for all but oil companies must estimate what that value is)
Winners Curse: The bidder who overestimates the value of a lease will be the highest (winning) bidder
Private Value Auction
Art or collectibles. Determined by marginal demand and highest bid wins
Ascending Price Auction (English Auction)
Highest bidder wins and pays that amount
Sealed Bid Auction
Each bidder provides a reservation price which remains anonymous and depends on highest willingness to pay
Optimal bid: Highest bid may be just above second highest. Bids are not necessarily equal to bidders’ reservations prices.
Second Price Sealed Bid Auction (Vickerey Auction)
Highest bid wins, but winner says price of the second highest bid.
Descending Price Auction, Dutch Auction
Price begins by exceeding any willingness to pay. Price is reduced until a bigger agrees to buy. Bidders may specify how many units they would like to buy.
Modified Dutch: Winning bidders all pay the same price (which is the reservation price of the bidder whose bid wins the last units offered)
Single Price Auction
U.S. Treasury Securities
Non-competitive Bid
Indicates that those bidders will accept the amount of Treasuries indicated at the price determined by the auction, rather than specifying a maximum price in their bids.
