ManEconCh12 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  12 Auctions
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OBJECTIVES Explain how managers can apply game  theory to the analysis of auctions Describe the importance of auction  mechanisms and their use in strategic  decisions related to negotiations and  monopoly markets
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A SHORT HISTORY OF  AUCTIONS Babylonian marriage market described by  Herodotus (circa 300 BCE) The most beautiful women were auctioned first at the  highest prices. Less attractive women were auctioned for negative bids.  The man with the highest negative bid got the woman  and also got paid for it from the positive bids tendered  for the beautiful women. Auction use expanded rapidly with the  development of the Internet and e-commerce in  the 1990s.
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TYPES OF AUCTION  MECHANISMS English or Ascending-Bid Auction Reserve price: The lowest price at which a seller is  willing to sell a product; also called a reservation price Japanese auction: Auction in which bidders bid until the  price exceeds their reservation price Ascending-bid time auction: Auction in which the bidding  continues for a specified time Sniping: When bidders use programs to ensure that  they submit the last-second best bid
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TYPES OF AUCTION  MECHANISMS Dutch or Descending-Bid Auction Dutch auction: A descending-bid system in which initial prices  are set very high and are lowered at set intervals until accepted  by bidders Sealed-Bid Auction Second-Price, Sealed-Bid Auction Vickrey auctions: Second-price, sealed-bid auctions in  which the highest bidder receives the good or service at  the bid price of the second-highest bidder
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AUCTION MECHANISM AND  REVENUE GENERATION Assumptions Bidders are symmetric. Bidders with identical reservation prices who observe  the same signal will submit the same bids. Bidders have similar distributions of valuation that  are known to all. Reservation prices may differ across bidders. Bidders are risk-neutral. Bidders maximize expected value.
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AUCTION MECHANISM AND  REVENUE GENERATION Assumptions (Continued) Signals are independent. Reservation prices are a function of information and utility.  In private-value auctions, signals are independent if reservation  prices depend on utility (experience) rather than information  (about the value of the good at auction). In common-value auctions, signals are independent if 
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This note was uploaded on 03/30/2011 for the course ECON 3020 taught by Professor Lucas during the Spring '10 term at Hawaii Pacific.

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ManEconCh12 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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