ch25 - Auctions and Auction Markets Chapter 25: Auctions...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 25: Auctions and Auction Markets 1 Auctions and Auction Markets
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 25: Auctions and Auction Markets 2 Introduction Auctions have an old history and are increasingly common 193 AD, Praetorian Guard auctioned off the the Roman Empire to Marcus Didius Salvius Julianus Modern Examples eBay (Consumers) Covisint/Free Markets (B2B) Wireless Spectrum Auction (Government2B)
Background image of page 2
Chapter 25: Auctions and Auction Markets 3 Auction Types Ascending Bid or English Auction Probably most familiar—Price starts low Price is raised gradually until only one bidder remain Descending Bid or Dutch Price starts high Price is lowered until someone finally wants to buy Sealed Bid Auctions Bids effectively submitted in sealed envelopes First-Price Sealed Bid: Winning bidder pays amount bid Second-Price Sealed Bid: Winning bidder pays amount equal to second-highest bid Private Value Auction—Item value different for each bidder Common Value Auction—Item value common to all bidders but each has different information about true common value
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 25: Auctions and Auction Markets 4 The Revenue Equivalence Theorem Revenue to Seller is Same Regardless of Auction Type in a Private Value Auction Consider auction of textbook among 170 students Values start at $0.50 and increase by $0.50 with each student. So, top value is $85 Consider English Auction where Auctioneer raises price by 1¢ each round When bid reaches $84.50, only two bidders remain Final winning bid will be $84.51 when only one bidder is left Second Price Sealed Bid If bidders bid their true values, top two bidders will bid $85 and $84.50, respectively Bidder with $85 valuation will win but pays only $84.50 $84.51
Background image of page 4
Chapter 25: Auctions and Auction Markets 5 Revenue Equivalence (Cont.) Why bid one’s true value in Second-price, sealed bid auction? What one bids determines only if one wins—not what
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/08/2011 for the course EC 170 taught by Professor Menegotto during the Fall '08 term at Tufts.

Page1 / 12

ch25 - Auctions and Auction Markets Chapter 25: Auctions...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online