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Auctions Julina, Hales, Lauren, and Jaki. Definitions Auction: a process of buying and selling goods through bids for an optimal price. Auctions must.

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Presentation on theme: "Auctions Julina, Hales, Lauren, and Jaki. Definitions Auction: a process of buying and selling goods through bids for an optimal price. Auctions must."— Presentation transcript:

1 Auctions Julina, Hales, Lauren, and Jaki

2 Definitions Auction: a process of buying and selling goods through bids for an optimal price. Auctions must meet a reserve price (the minimum price for which a seller is willing to sell a good or service). If the item does not sell at or above the reserve price, then the auction house retains ownership of the object.

3 Types of Auctions (There are many types of auctions, but these are the most popular ones) English auction Sealed first price auction Dutch auction Sealed second price (Vickrey) auction

4 English Auction Also known as “Open Price Ascending Auction” Multiple bidders Ascending bids (get higher as you go) Next highest bid is known Highest bidder wins and pays his own bid

5 First Price Sealed Auctions Multiple bidders One bid per buyer Bidders place bids simultaneously Highest bid wins Closed auction (nobody knows what the other bids are) Highest bidder wins and pays his own bid

6 Dutch Auctions Also known as “Open descending auctions” Auctioneer begins with the highest asking price, which keeps decreasing until one bidder accepts the auctioneer’s price. Multiple participants; one bidder First bidder wins and pays bid price Not widely used in practice Example: flowers in Holland

7 Second Price Sealed Auction Also known as “Vickrey Auction” Closed (No one sees what others are bidding) Simultaneous bidding Identical to sealed first price auction, except the winner pays the price of the second highest bid, plus a bidding increment. Not commonly used, but important to auction theory.

8 Japanese Button Auction Everyone is entered in the auction. When the price exceeds a bidder’s valuation, the bidder will drop out of the auction. Equivalent to the English second price auction.

9 Other Definitions :Uses proxy bidding

10 continued.. Winner’s Curse: the fact that, in a common values auction, winning bidders tend to be those who have overestimated the good’s value. Buyer’s Curse: the tendency to purchase at a loss How would you classify this?

11 Game Theory First price sealed auction If I win my payoff = (v-b)pr(win)

12 Game Theory Second price sealed auction Equilibria: One person bids $10,000,000 and the other bids $0 Each person bids their own value

13 Competition Between Auctions Auction House Methods Price guarantees Buyer’s premium Buy-in penalties

14 Government Best Value contracts created by Clinton Administration in 1990s Reverse auctions: Where prices spiraling down Ex: Shaving as much as 40% off of defense contracts Concerns about quality Auctioning Licensing Rights

15 Bibliography N_WP_ pdf N_WP_ pdf f f


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