Microeconomics · free preview
Auctions: Bidding as Strategy
Four auction formats, ascending, descending, first-price and second-price, reward different bidding rules, yet under private values they earn the seller the same expected revenue, and common values add the winner's curse.
1. Four ways to sell one guitar
Four ways to sell one guitar
2. Why truth-telling pays in a second-price auction
Why truth-telling pays in a second-price auction
3. Revenue equivalence
Revenue equivalence
4. The winner's curse
The winner's curse
5. The English auction outcome
In the English auction for the guitar, bidders value it at 90, 70, 55, 40 and 25 dollars and bid openly as the price rises. What is the outcome?
6. Shading in a first-price auction
Why is bidding your full 90-dollar value a mistake in a first-price sealed-bid auction?
7. Truthful bidding is dominant where
In which pair of formats does the dominant-strategy logic of bidding exactly your own value apply?
8. Curing the curse
An oil lease has one true value nobody knows, and five firms each drill an independent estimate. Why does the winning bid tend to overpay?
9. The English surplus
In the English auction, the bidder who values the guitar at 90 dollars wins at a price of about 70 dollars. Compute her surplus in dollars, and write the number.
10. The uniform two-bidder bid
In a first-price auction with two bidders whose values are drawn uniformly from 0 to 100, the equilibrium bid is half your value. A bidder values the item at 90 dollars. Compute her bid in dollars, and write the number.
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