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an introduction
DAI Hards
October 16th
Introduction
• Auctions are the most widely-studied economic
mechanism.
• Auctions refer to arbitrary resource allocation problems
with self-motivated participants: Auctioneer and bidders
• Auction (selling item(s)): one buyer, multiple bidders)
e.g. selling a cd on eBay
• Reverse Auction (buying item(s)): one buyer, multiple
sellers
e.g. procurement
• We’ll discuss auction, though the same theory holds for
reverse auction
Historical note
• Single-item Auctions
– Common auctions forms
– Equivalence between auctions
– Revenue equivalence
• Multi-unit Auction
• Multi-item Auction
Single Item Auction
English
(first-price open-cry = ascending)
• Protocol: Each bidder is free to raise his bid. When no bidder is
willing to raise, the auction ends, and the highest bidder wins the
item at the price of his bid
• Strategy: Series of bids as a function of agent’s private value, his
prior estimates of others’ valuations, and past bids
• Best strategy: In private value auctions, bidder’s dominant
strategy is to always bid a small amount more than current highest
bid, and stop when his private value price is reached
• Variations:
– In correlated value auctions, auctioneer often increases price at
a constant rate or as he thinks is appropriate (japonese auction)
– Open-exit: Bidder has to openly declare exit without re-entering
possibility => More info to other bidders about the agent’s
valuation
First-price sealed-bid
• Protocol: Each bidder submits one bid without knowing
others’ bids. The highest bidder wins the item at the
price of his bid
• Single round of bidding
• Strategy: Bid as a function of agent’s private value and
his prior estimates of others’ valuations
• Best strategy: No dominant strategy in general
• Strategic underbidding & counterspeculation
• Can determine Nash equilibrium strategies via common
knowledge assumptions about the probability
distributions from which valuations are drawn
• Variant: kth price
Example
First-Price
First-Price Sealed
Sealed Bid
Bid Dutch
Dutch Descending
Descending Price
Price
Strong
Setting for Private Value Auctions
N potential bidders. Bidder i is assigned a value of Xi to the
object
– Each Xi is i.i.d. on some interval [0,ω] according to the
cumulative distribution F
– Bidders I knows her/his xi and also that other bidders values are
i.i.d. according to F
– Bidders are risk neutral (seek to maximize their expected
payoffs)
– The number of bidders and the distribution F are common
knowledge.
• Symmetry
The distribution of values is the same for all bidders. WE can
consider that all bidders are alike, hence an optimal bidding
strategy for one should also be an optimal strategy for the
others symmetric equilibrium
Results for private value auctions
– Agent should lie (bid low) even in Vickrey & English Revelation to
proxy bidders?
• Thrm (revenue non-equivalence ). With more than 2 bidders, the
expected revenues are not the same:
English ≥ Vickrey ≥ Dutch = first-price sealed bid
Results for non-private value
auctions
• Common knowledge that auctioneer has
private info
Q: What info should the auctioneer release ?
A: auctioneer is best off releasing all of it
• “No news is worst news”
• Mitigates the winner’s curse
The revelation principle
(mechanism Design)
Number of units
Pricing rules
• Dutch Auctions
• English Auctions
• Ausubel Auctions
Multi-item auctions
multiple distinguishable items for
sale
Bundle bidding scenario
Bundle bidding scenario
Bundle bidding scenario