SPA145 - Second Price Auction Ichiro Obara UCLA February...

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Second Price Auction Ichiro Obara UCLA February 11, 2010 Obara (UCLA) Second Price Auction February 11, 2010 1 / 24
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Auction Auction Obara (UCLA) Second Price Auction February 11, 2010 2 / 24
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Auction Auction So far we have studied only nonmonetary transactions. Now we introduce money. This changes the nature of the problem considerably. Our analysis will be based more on calculus. We start with a simple problem of assigning one indivisible object to one of many individuals who values the object. That is, we study auction . We are interested in efficiency (often trivial), incentive property, as well as profitability of various auction formats. Obara (UCLA) Second Price Auction February 11, 2010 3 / 24
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Second Price Auction Second Price Auction Obara (UCLA) Second Price Auction February 11, 2010 4 / 24
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Second Price Auction Second Price Auction Second Price Auction The bidders submit their bid in a sealed envelope. The highest bidder wins, gets the good by paying the second highest bid. If k 2 bidders are tied, each bidder wins with probability 1 / k and pays his or her own bid. This auction may look awkward. But many auctions in real life are “equivalent” to it. Obara (UCLA) Second Price Auction February 11, 2010 5 / 24
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Second Price Auction English Auction The second price auction is similar to English Auction . Bidders bid by raising a hand any time. An auction ends when there is no bidder to outbid the current highest bid (“going, going, and gone. ..”). The highest bidder wins and pays his or her bid. English auction is weakly strategically equivalent to the second price auction. Obara (UCLA) Second Price Auction February 11, 2010 6 / 24
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eBay Auction eBay’s auction is equivalent to the second price auction. Proxy bid: First you set your reservation value, then bidding is done automatically. At each point of time, only the highest bid can be seen on screen. If the current highest bid is less than your reservation value, then you bid that bid + $1. The auction is over after a certain predetermined period of time. When the aution is over, the bidder with the highest current bid wins the object and pays his or her bid. This auction is
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SPA145 - Second Price Auction Ichiro Obara UCLA February...

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