Auctions Hal R. Varian

Auctions Auctions are very useful mean of price discovery eBay, everyone’s favorite example DoveBid, high value, not so well known Overture and Google sell ads via an auction

Theory One item to auction off, 1 seller, many buyers Private value: independent of others Common value: everyone has the same value, different information Common forms: English, Dutch, Sealed bid, Vickrey

Analysis (for private values) Dutch and sealed bid are “strategically equivalent” since strategy is just determining at what price you will bid English and Vickrey auctions are strategically equivalent (up to bid increment)

Truthtelling in auctions Will generally want to bid less than your value in a sealed bid (or Dutch) auction Will go up to your true value in English auction What about Vickrey auction?

Vickrey auction Payoff to 1 = Prob(b 1 > b 2 )[v 1 – b 2 ] If v 1 > b 2, want to max Prob(b 1 >b 2 ) If v 1 b 2 ) So always want to tell the truth Like eBay’s proxy bidding agents or Google’s Adwords Discounter