VAMSEE KONERU PRADNYA SUTE AUCTIONS VAMSEE KONERU PRADNYA SUTE

OUTLINE INTRODUCTION AUCTION SETTINGS AUCTION PROTOCOLS ISSUES

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

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

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

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

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

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

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

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

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

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

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

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

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