1. VAMSEE KONERU PRADNYA SUTE
AUCTIONS
VAMSEE KONERU
PRADNYA SUTE

2. OUTLINE
INTRODUCTION
AUCTION SETTINGS
AUCTION PROTOCOLS
ISSUES

3. INTRODUCTION
An auction is a deal between two agents – an auctioneer and one of the bidders
Auctioneer – highest possible payment
Bidder – lowest possible price
Auction theory: Auction protocols and agent strategies
Dominant strategy

4. AUCTION SETTINGS Based on how an agent’s value of the item is formed
Private value auctions
Common value auctions
Correlated value auctions

5. AUCTION PROTOCOLS English auction First-price sealed-bid auction
Dutch auction
Vickrey auction

6. 1. ENGLISH AUCTIONS First-price, open-cry, ascending
Strategy – function of private value, others valuations and past bids
Dominant strategy – bid in small increments until private value is reached
Winner pays price of his bid
Open exit
Real-time

7. 2. FIRST-PRICE SEALED-BID
One – shot
Highest bidder wins at his price
No relevant information is revealed
No dominant strategy
Best strategy – bid less than true value
Bidder uncertainty

8. 3. DUTCH AUCTIONS Open-cry descending
Auctioneer starts at a high price and keeps lowering it until someone grabs the price
No dominant strategy (like first-price sealed-bid)
Efficient in real-time

9. 4. VICKREY AUCTIONS Second-price sealed bid One-shot
Highest bidder wins at second highest price
Dominant strategy – bid at true value
Encourages truthfulness
Effort is not wasted in counterspeculation

10. PROTOCOL EQUIVALENCE Strategic equivalence Same expected revenue
Same bidding strategy
English and Vickrey auctions
First-price sealed-bid and Dutch auctions

11. ISSUES Winner’s curse Efficiency of allocation Pareto efficiency
English and Vickrey auctions - Most efficient

12. Revenue Equivalence MODEL REVENUE RANKINGS Independent Private values
Risk neutral bidders
D = F = V = E
Independent private values
Risk averse bidders
D = F > V = E
Affiliated, privately known values
D = F < V = E
Affiliated, private unknown values
D = F < V < E

13. Bidder Collusion None of the four is collusion-proof
First-price sealed-bid and Dutch auctions better
Bidders need not identify each other to collude in English auctions, unlike in the others

14. Lying Auctioneer
Problem in Vickrey auction – overstated second bid – electronic signatures
Non-private value auctions – English auction – auctioneer’s shills
Overstated reservation price in Vickrey auctions – sometimes risky to the auctioneer

15. Computation Auctions of interrelated items Counterspeculation
Inefficient allocation and lying - lookahead
Counterspeculation
Uncertainty about valuation
When to counterspeculate