Section 1: Single-Good Auctions

Key Learning Points

• Provide a taste for the literature about auctions, concentrating on auctions for selling a single good.
• Describe some of the most famous families: English, Japanese, Dutch, and sealed-aid auctions.
• Present a unifying view of auctions as structured negotiations.
• Define an auction as a quasilinear mechanism.
• Introduce the concept of independent private value (IPV).
• Show that in a second-price auction where bidders have IPVs, truth telling is a dominant strategy.
• Explore the Bayes-Nash equilibrium property for first-price and Dutch auctions.
• Understand the revenue equivalence theorem.
• Explore three variations on the auction model: reverse auctions, auctions with entry costs, and auctions with uncertain numbers of bidders.
• Consider the collusion issue in auctions.
• Discuss different models in which agents’ valuations depend on both their own signals and other agents’ signals.

Activities

1. Read Section 11.1 of the text
2. Watch the following videos:
   1. Auctions: Taste
   2. Auctions: Taxonomy
   3. Bidding in Second-Price Auctions
   4. Bidding in First-Price Auctions
   5. Revenue Equivalence
   6. Optimal Auctions
   7. More Advanced Auctions
3. Do the following exercises:
   1. Show an example where an agent is best off bidding insincerely if the second-price auction is implemented as open-cry instead of sealed-bid.
   2. You are given a painting to sell at an auction and wish to maximize its sale price. What type of auction should you use? Explain.
4. Discuss the following questions in the discussion forum:
   1. How does the revelation principle relate the Vickrey auction to the English auction?
   2. How does this relate to “agents” that bid on human’s behalf?