1 Private Value Auctions There will be five bidding groups. I will give each bidding group a value estimate. The estimates will be distributed as X-2000, X-1000, X, X+1000, X Across auctions, the values will be changed. Each of the five groups has a different private value. A groups estimate is precisely equal to its private value. 1. Open cry, but you don't know all the values. 2. Open cry, and you know all the values. (Same values as before, just switched around) 3. Sealed bid, and you know all the values. (Same values as before, just switched around) 4. Dutch auction (descending), and you know all the values. (Same values as before, just switched around) 5. Dutch auction (descending), but you don't know all the values. (New values) 6. Sealed bid, but you don't know all the values. (New values)

2 Common Value Auctions There will be five bidding groups. I will give each bidding group a value estimate. The estimates will be distributed as X-2000, X-1000, X, X+1000, X Across auctions, the values will be changed. Each of the five groups has the same common value, X. Four of the groups have misestimated the value by 1000 or Open cry, but you don't know all the values. (New values) 8. Open cry, and you know all the values. (Same values as before, just switched around) 9. Sealed-bid, but you don't know all the values. (New values)

3 Some Lessons 1. Bidders in an open-cry private-value auction should bid up to their valuations. 2. Bidders in a sealed-bid private-value auction should bid less than their valuations, aiming to bid just more than the second- highest bidder. 3. Bidders in a common-value auction should bid less than they would in a private-value auction, because of the Winner's Curse. 4. A seller who is ignorant of the value of his goods gets a good price from an auction, which he would not if he sold via bargaining or posted prices. 5. Better information leads to more aggressive bidding, an advantage of the open cry auction. 6. Sealed-bid auctions make collusion more difficult, because someone who breaks the collusive agreement wins the auction.