Lecture_31_Auctions

Lecture_31_Auctions - Lecture 31: Auctions c 2008 Jerey A....

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Lecture 31: Auctions c 2008 Je/rey A. Miron Outline 1. Introduction 3. Auction Design 4. Other Auction Forms 5. Problems with Auctions 6. The Winner±s Curse 1 Introduction In our discussion of markets so far, we have focussed on what the equilibrium of a particular structure might be and de-emphasized the process by which a market or the overall economy gets to equilibrium. This is potentially a limitation. We would rarely expect a market to always be in equilibrium, since all markets are hit by shocks to supply and demand that, at least temporarily, move them away from equilibrium. We would therefore ideally be able to model how markets that are not in equilibrium end up moving to an equilibrium. As a general rule, this is a hard question, and one for which economists do not always have great answers. Stated di/erently, we do not usually model the process of trade and price-setting and instead focus on the quantity and price that should In some settings, however, it is possible and interesting to model some aspects of how prices and quantitites are determined. The best example is auction markets. We have already encountered auctions brie²y in our discussion of general equilibrium. In that setting, we showed that a ³Walrasian auctioneer´could bring about a Pareto 1
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e¢ cient equilibrium by initially announcing an abribtrary set of prices and then adjusting these in a particular direction based on the pattern of excess demands and supplies observed at those prices. In this lecture we take a more detailed look at auction markets. Auctions are employed to sell a wide range of goods, including oil drilling rights, bands of the radio spectrum, government owned electricity plants or phone systems, objects of art, tickets to sporting events, and much more. With the advent of internet auctions like eBay, the set of goods sold in auctions has expanded enormously in recent years. characteristics of the good being auctioned, and what are the rules of bidding? 2.1 Characteristics of the Good Being Auctioned The key characteristic of goods being auctioned is whether they are private-value or common-value . Private value means that the value can di/er across the participants in the auc- tion. This is plausible for works of art, for example. Common value means that the good in question has the same value to every participant. The right to drill for oil on a particular piece of land is a good example. All participants intend to use the right in the same way: explore for oil and sell any oil discovered at the market price. Note that the assumption of common value does not mean di/erent participants
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Lecture_31_Auctions - Lecture 31: Auctions c 2008 Jerey A....

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