DCS/CSCI 2350: Social & Economic Networks Auctions Reading: - PDF document

11/11/19 DCS/CSCI 2350: Social & Economic Networks Auctions Reading: Ch. 9 of EK Mohammad T . Irfan 1 Examples of auctions u eBay (one seller, many buyer) u Government’s procurement auction (many sellers, one buyer) u Christie’s and Sotheby’s art auction u Chicago wine company’s auction on wine 2 1

11/11/19 When are auctions appropriate? 1. Seller doesn’t know buyers’ true values u Otherwise u $y = max value held by buyers u Seller imposes fixed price of $y – 1c and gets the biggest possible profit margin 2. Buyers don’t know each other’s value Independent, private values u 3 Assumption: Only 1 item being auctioned 4 2

11/11/19 Types of auctions u Real-time u Descending bid/Dutch auction u http://www.youtube.com/watch?v=V2CK2TatM_U u Ascending bid/English auction u http://www.youtube.com/watch?v=q73-EaQydWU u Simultaneous u First-price sealed bid auction Equivalent to descending price u Highest bidder wins and pays own bid u Second-price sealed bid auction (Vickrey auction) Equivalent to u Highest bidder wins, but pays the 2 nd highest bid ascending price 5 Next u Second-price auction u Bidder’s dominant strategy is to bid truthfully u Why? u First-price auction u Will bidders be truthful? 6 3

11/11/19 Second-price auction Bidders' dominant strategy is to bid truthfully 7 First-price auction u Will bidders be truthful? u No u Bid v i è Payoff is 0, win or lose u Bid < v i è Could potentially get +ve payoff 8 4

11/11/19 Winner's curse u "Common value auction" u The "intrinsic" value of the item is common to all bidders, but bidders are uncertain about the value u Example: offshore oil-field u Highest bidder may end up losing money, even in second-prize auction u Why? 9 Which auction is more profitable for a seller? u First-price u Seller gets the highest bid, but the buyers lied (i.e., they underbid) u Second-price u Seller gets the 2 nd highest bid, but that is true value u Which one is better? Unknown. 10 5

11/11/19 Auctions with multiple items? 11 Multiple items u Not well understood u Second-prize auction may not be collusion- proof u Example: Germany's spectrum auction (1999) u "Generalized" second-prize (GSP) auction u Coming up ~ last week 12 6