How (Not) to make money Econ 488a Yoonsuk Chay Jeongseok Yu

Introduction Paper written by Jacob K. Goeree on Charity Auction Argument: Standard winner-pay auctions are inefficient Problems with Vickery auction -Free-rider problem / suppression of bid

Vickery Auction

All pay auction with reserve price

Methods Individual value uniformly distributed from 0 to 100. Return rate depends on # of participants ex) 20 participants : rate < 5%. We chose 3.75%, 1.25% Determining the entry fee and reserve price for All pay auction. Given n = # of participants, and a = return rate Reserve price: r = Entry fee = When n= 20, 15, 10, reserve price = entry fee = 0. When n = 5 & a = 15%, then r = 3.7, entry = 4.4 Run standard Vickrey auction & All pay auction.

Analysis Real life Fund Raising Charity Auctions Big Assumption - everyone has to participate Without information on N, the participants have no definite information about the entry price/ reserve price -R price =.5 n / (1- a) -Entry fee = ar(n-1) 2 / 2(1-na)