Essays on Almost Common Value Auctions
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MICROECONOMICS and POLICY ANALYSIS - U8213 Professor Rajeev H
MICROECONOMICS AND POLICY ANALYSIS - U8213 Professor Rajeev H. Dehejia Class Notes - Spring 2001 Auctions Wednesday, February 14 Reading: Handout, Thaler, Milgram There are two basic forms of auctions: Sealed bid submissions and open bids. In a sealed bid auction individuals do not know what others are bidding. Two types of Sealed Bid Auctions: 1st Price sealed bid auction: The highest bid submitted will be the winning bid. The winner pays what he/she bid. 2nd Price sealed bid auction: Everyone submits sealed bids and the winner is the one who submits the highest bid BUT the price paid by the winner is the 2nd highest bid submitted. Two types of open auctions: English auction: The bidding starts low and incrementally rises until someone is the highest bidder and no one is willing to outbid the highest bidder. Dutch auction: The price starts very high and is keeps going down until someone bids. The first person to bid wins. Why Study Auctions? 1) Auctions can be an efficient method of valuing goods. For example: rights to air waves, signals and bandwidth. The government auctioned off parts of the spectrum in anticipation of new technology. The auctions were appealing because well- structured auctions get people to reveal the true valuation of the good. The company (private entity) actually ends up paying to the government what the good is worth to them. It turned out with these auctions that the willingness to pay for a slice of the spectrum, as revealed by the auction outcome, was much higher than expected. 2) Procurement: Governments and entities want to procure goods and services at the lowest possible price (like an auction in reverse). -
Shill Bidding in English Auctions
Shill Bidding in English Auctions Wenli Wang Zoltan´ Hidvegi´ Andrew B. Whinston Decision and Information Analysis, Goizueta Business School, Emory University, Atlanta, GA, 30322 Center for Research on Electronic Commerce, Department of MSIS, The University of Texas at Austin, Austin, TX 78712 ¡ wenli [email protected] ¡ [email protected] [email protected] First version: January, 2001 Current revision: September 6, 2001 Shill bidding in English auction is the deliberate placing bids on the seller’s behalf to artificially drive up the price of his auctioned item. Shill bidding has been known to occur in auctions of high-value items like art and antiques where bidders’ valuations differ and the seller’s payoff from fraud is high. We prove that private- value English auctions with shill bidding can result in a higher expected seller profit than first and second price sealed-bid auctions. To deter shill bidding, we introduce a mechanism which makes shill bidding unprofitable. The mechanism emphasizes the role of an auctioneer who charges the seller a commission fee based on the difference between the winning bid and the seller’s reserve. Commission rates vary from market to market and are mathematically determined to guarantee the non-profitability of shill bidding. We demonstrate through examples how this mechanism works and analyze the seller’s optimal strategy. The Internet provides auctions accessible to the general pub- erature on auction theories, which currently are insufficient to lic. Anyone can easily participate in online auctions, either as guide online practices. a seller or a buyer, and the value of items sold ranges from a One of the emerging issues is shill bidding, which has become few dollars to millions. -
Game Theory 2021
More Mechanism Design Game Theory 2021 Game Theory 2021 Ulle Endriss Institute for Logic, Language and Computation University of Amsterdam Ulle Endriss 1 More Mechanism Design Game Theory 2021 Plan for Today In this second lecture on mechanism design we are going to generalise beyond the basic scenario of auctions|as much as we can manage: • Revelation Principle: can focus on direct-revelation mechanisms • formal model of direct-revelation mechanisms with money • incentive compatibility of the Vickrey-Clarke-Groves mechanism • other properties of VCG for special case of combinatorial auctions • impossibility of achieving incentive compatibility more generally Much of this is also (somewhat differently) covered by Nisan (2007). N. Nisan. Introduction to Mechanism Design (for Computer Scientists). In N. Nisan et al. (eds.), Algorithmic Game Theory. Cambridge University Press, 2007. Ulle Endriss 2 More Mechanism Design Game Theory 2021 Reminder Last time we saw four auction mechanisms for selling a single item: English, Dutch, first-price sealed-bid, Vickrey. The Vickrey auction was particularly interesting: • each bidder submits a bid in a sealed envelope • the bidder with the highest bid wins, but pays the price of the second highest bid (unless it's below the reservation price) It is a direct-revelation mechanism (unlike English and Dutch auctions) and it is incentive-compatible, i.e., truth-telling is a dominant strategy (unlike for Dutch and FPSB auctions). Ulle Endriss 3 More Mechanism Design Game Theory 2021 The Revelation Principle Revelation Principle: Any outcome that is implementable in dominant strategies via some mechanism can also be implemented by means of a direct-revelation mechanism making truth-telling a dominant strategy. -
Introduction to Auctions Protocols Revenue and Optimal Auctions Common Value Auctions
Auctions Kate Larson Introduction Auction Protocols Common Auction Introduction to Auctions Protocols Revenue and Optimal Auctions Common Value Auctions Vulnerabilities Kate Larson in Auctions Beyond Single Cheriton School of Computer Science Item Auctions University of Waterloo Summary Outline Auctions Kate Larson 1 Introduction Introduction Auction Protocols 2 Auction Protocols Common Auction Protocols Common Auction Protocols Revenue and Optimal Auctions Common Value Revenue and Optimal Auctions Auctions Common Value Auctions Vulnerabilities in Auctions Beyond Single 3 Vulnerabilities in Auctions Item Auctions Summary 4 Beyond Single Item Auctions 5 Summary Auctions Auctions Kate Larson Methods for allocating goods, tasks, resources,... Introduction Participants Auction auctioneer Protocols Common Auction bidders Protocols Revenue and Optimal Auctions Enforced agreement between auctioneer and the Common Value Auctions winning bidder(s) Vulnerabilities in Auctions Easily implementable (e.g. over the Internet) Beyond Single Conventions Item Auctions Summary Auction: one seller and multiple buyers Reverse auction: one buyer and multiple sellers Todays lecture will discuss the theory in the context of auctions, but this applies to reverce auctions as well (at least in 1-item settings). Auction Settings Auctions Kate Larson Introduction Private value: the value of the good depends only on Auction the agent’s own preferences Protocols e.g a cake that is not resold of showed off Common Auction Protocols Revenue and Common value: an agent’s value of an item is Optimal Auctions Common Value determined entirely by others’ values (valuation of the Auctions item is identical for all agents) Vulnerabilities in Auctions e.g. treasury bills Beyond Single Item Auctions Correlated value (interdependent value): agent’s Summary value for an item dpends partly on its own preferences and partly on others’ value for it e.g. -
Reverse Live Auction for Bidder
Process for Reverse Live Auction What is Reverse Live Auction? Reverse Live Auction (RLA) implemented in the Chhattisgarh State Power Companies uses Supplier Relationship Management (SRM) module of SAP (globally Known ERP). RLA provides a real-time environment which drives bottom-line results significantly by putting suppliers into direct competition with each other. Transaction type “English Auction” is used in RLA which works on principal “New Bid Must Beat Overall Best Bid”. RLA have the provision of setting up the auction with automatic extensions that is if the bid is submitted within few minutes/seconds of the auction end time. The auction end time will automatically get extended, based on the timing parameters fixed by purchaser. Automatic Extension of end time in RLA is based on below given 3 parameters defined by Purchaser and also visible to bidders once the RLA is published: • Remaining Time Trigger: This field refers to the duration of time (minutes), before which Reverse Live Auction is programmed to end, if a new bid is placed within this time duration, the RLA will be extended with specified time (Extension Period). • Extension Period: The span of time (hours or minutes) by which the system extends an RLA, if a bid is received during “Remaining Time Trigger” period. • Number of Extensions: This field depicts the maximum number of times by which an auction can be extended automatically. Process for Reverse Live Auction Please follow the below given steps to configure Java to run the “Live Auction Cockpit” in case the Application is blocked by JAVA: 1. Go to Control Panel > Double click on JAVA to open. -
The Ability of Dutch Foreclosure Auctions in Maximizing Seller Revenue
The ability of Dutch foreclosure auctions in maximizing seller revenue Why Dutch foreclosure auction prices fall short of the market price Martijn Duijster 0475211 Group 2 Finance, semester 2, 2013-2014 17-7-2014 Bachelor thesis Economics and Business - specialization Finance and Organization Sander Onderstal Faculty of Economics and Business University of Amsterdam Index Abstract 3 1. Introduction 3 2. Dutch real estate auctions 4 3. Literature review 6 3.1. Types of auctions 6 3.2. The revenue equivalence results 8 3.3. Violations of the revenue equivalence result assumption 8 3.3.1. Information asymmetry 9 3.3.2. Competition 10 3.3.3. Bidder affiliation and the winner’s curse 11 4. Hypotheses 12 5. Research method 13 6. Results 15 6.1.. Explanation of the results 17 6.1.1. Information asymmetry 17 6.1.2. Competition 18 6.1.3 Solutions to improve competition 18 6.1.4. Transaction costs 19 6.1.5 Conflicts of interest between seller and owner 21 7. Conclusion 22 References 24 Appendices 26 2 Abstract The revenues in Dutch foreclosure auctions are compared to the market values of the properties. The discount rate is calculated which states the difference between the auction price and the market price. Foreclosure auctions in the Netherlands fail to receive an auction price close to the market price; the average discount rate with auction cost included in the auction price is about 20% and the discount rate when auction costs are excluded is about 27%. Asymmetric information, lack of competition, transaction costs and conflicts of interest may be attributable to this price gap. -
Foreclosure Auctions∗
Foreclosure Auctions∗ Andras Niedermayery Artyom Shneyerovz Pai Xux This Draft: February 11, 2016 Abstract We develop a novel theory of real estate foreclosure auctions, which have the special feature that the lender acts as a seller for low and as a buyer for high prices. The theory yields several empirically testable predictions concerning the strategic behavior of the agents when the seller has an informational advantage. Using novel data from Palm Beach County (FL, US), we find evidence of asymmetric information, with the lender being the informed party. Moreover, the data are consistent with moral hazard in mortgage securitization: banks collect less information about the value of the mortgage collateral. Keywords: foreclosure auctions, asymmetric information, bunching, discontinuous strategies, securitization JEL Codes: C72, D44, D82, G21 ∗We thank Matt Backus, Brent Hickman, Tanjim Hossain, Matthias Lang, Philipp Schmidt-Dengler, Hidenori Takahashi, Stefan Terstiege, Thomas Tr¨oger,Ernst-Ludwig von Thadden, Lixin Ye and participants of IIOC 2014 in Chicago, the 2014 Conference on \Auctions, Competition, Regulation and Public Policy" in Lancaster, EARIE 2014 in Milan, MaCCI IO Day 2014 in Mannheim, SFB TR 15 Workshop 2015 in Bonn, the 2015 MaCCI Summer Institute in Erfstadt, the Econometric Society World Congress 2015 in Montreal, the EEA Meeting 2015 in Mannheim, seminars at the Universities of Konstanz, Mannheim, Melbourne, Toronto, the Paris School of Economics, Concordia University, and WHU (Otto Bensheim School of Management) for helpful comments. The first author acknowledges financial support from the Deutsche Forschungsgemeinschaft through SFB-TR 15. yEconomics Department, University of Mannheim, L7, 3-5, D-68131 Mannheim, Germany. -
Auction Theory
Auction Theory Jonathan Levin October 2004 Our next topic is auctions. Our objective will be to cover a few of the main ideas and highlights. Auction theory can be approached from different angles – from the perspective of game theory (auctions are bayesian games of incomplete information), contract or mechanism design theory (auctions are allocation mechanisms), market microstructure (auctions are models of price formation), as well as in the context of different applications (procure- ment, patent licensing, public finance, etc.). We’re going to take a relatively game-theoretic approach, but some of this richness should be evident. 1 The Independent Private Value (IPV) Model 1.1 A Model The basic auction environment consists of: Bidders i =1,...,n • Oneobjecttobesold • Bidder i observes a “signal” Si F ( ), with typical realization si • [s, s], and assume F is continuous.∼ · ∈ Bidders’ signals S1,...,Sn are independent. • Bidder i’s value vi(si)=si. • Given this basic set-up, specifying a set of auction rules will give rise to a game between the bidders. Before going on, observe two features of the model that turn out to be important. First, bidder i’s information (her signal) is independent of bidder j’s information. Second, bidder i’s value is independent of bidder j’s information – so bidder j’s information is private in the sense that it doesn’t affect anyone else’s valuation. 1 1.2 Vickrey (Second-Price) Auction In a Vickrey, or second price, auction, bidders are asked to submit sealed bids b1,...,bn. The bidder who submits the highest bid is awarded the object, and pays the amount of the second highest bid. -
English and Vickrey Auctions
CHAPTER ONE English and Vickrey Auctions I describe a bit of the history of auctions, the two pairs of standard auction forms, and the ideas of dominance and strategic equivalence. 1.1 Auctions It is hard to imagine modern civilization without buying and selling, which make possible the division of labor and its consequent wealth (Smith, 1776). For many common and relatively inexpensive commodi ties, the usual and convenient practice at the retail level, in the West anyway, is simply for the seller to post a take-it-or-leave-it price, and for the prospective buyer to choose what to buy and where to buy it, perhaps shopping for favorable prices. I haven’t tried haggling over price at a Wal-Mart, but I can’t imagine it would get me very far. For some big-ticket items, however, like houses and cars, haggling and counteroffers are expected, even in polite society, and bargaining can be extended over many rounds. In some cultures, haggling is the rule for almost all purchases. A third possibility, our subject here, is the auction, where many prospective buyers compete for the opportunity to purchase items, either simultaneously, or over an extended period of time. The main attraction of the auction is that it can be used to sell things with more or less uncertain market value, like a tractor in a farmer’s estate, a manufacturer’s overrun of shampoo, or the final working copy of Beethoven’s score for his Ninth Symphony (see fig. 1.1). It thus promises to fetch as high a price as possible for the seller, while at the same time offering to the buyer the prospect of buying items at bargain prices, or perhaps buying items that would be difficult to buy in any other way. -
AUCTIONS an Introduction
AUCTIONS An Introduction y Elmar Wolfstetter April Humb oldtUniversitat zu Berlin Institut f Wirtschaftstheorie I Wirtschaftswissenschaftliche Fakultat Spandauerstr Berlin Germany email wolfwiwihub erlinde Abstract This is a fairly detailed review of auction theory It b egins with basic results on private value auctions with particular emphasis on the generality and limitations of the revenue equivalence of a large class of distinct auction rules The basic framework is then gradually mo died to admit for example risk aversion a minimum price entry fees and other xed costs of bidding multiunit auctions and bidder collusion There follows an intro duction to the theory of optimal auctions and to common value auctions and the asso ciated winners curse problem It closes with a sample of applications of auction theory in economics such as the regulation of natural monop olies the theory of oligop oly and the government securities market Diese Arb eit ist im Sonderforschungsb ereich Quantikation und Simulation Okonomischer Prozesse Humb oldtUniversitat zu Berlin entstanden und wurde auf seine Veranlassung unter Verwendung der ihm von der Deutschen Forschungsgemeinschaft zur Verfugung gestellten Mittel gedruckt y Comments byFriedel Bolle UweDulleck Peter Kuhbier Michael Landsb erger Wolfgang Leininger Georg Merdian and in particular by Dieter Nautz are gratefully acknowledged Contents Intro duction Private value auctions Some basic results on Dutch and English auctions Revenue equivalence theorem The case of uniformly -
Bidding Strategy and Auction Design
16 ■ Bidding Strategy and Auction Design UCTIONS AS MECHANISMS for selling goods and services date back to ancient Greece and Rome, where slaves and wives were commonly bought and sold at well-known public auction sites. Although the auction waned as a sales mechanism for several centuries after the fall of the Roman Em- pire,A it regained popularity in eighteenth-century Britain and has been a com- mon, if not ubiquitous, method of commerce since that time. Many thousands of people now make purchases at online auctions every day, and some may buy other items by way of mechanisms that are not even recognized as auctions. Despite this long history, the first formal analysis of auctions dates only to 1961 and the path-breaking work of Nobel Prize winner William Vickrey. In the decades that followed, economists have devoted considerable energy to devel- oping a better understanding of sales by auction, from the standpoint of both buyers (bidding strategy) and sellers (auction design). We cover both topics and provide a primer on auction rules and environments in this chapter. Technically, the term “auction” refers to any transaction where the final price of the object for sale is arrived at by way of competitive bidding. Many dif- ferent types of transactions fit this description. For example, the historic Filene’s Basement department store in Boston used a clever pricing strategy to keep cus- tomers coming back for more: it reduced the prices on items remaining on the racks successively each week until either the goods were purchased or the price got so low that it donated the items to charity. -
Competitive Bidding in Auctions with Private and Common Values
TI 2000-044/1 Tinbergen Institute Discussion Paper Competitive Bidding in Auctions with Private and Common Values Jacob K. Goeree Theo Offerman Tinbergen Institute The Tinbergen Institute is the institute for economic research of the Erasmus Universiteit Rotterdam, Universiteit van Amsterdam and Vrije Universiteit Amsterdam. Tinbergen Institute Amsterdam Keizersgracht 482 1017 EG Amsterdam The Netherlands Tel.: +31.(0)20.5513500 Fax: +31.(0)20.5513555 Tinbergen Institute Rotterdam Burg. Oudlaan 50 3062 PA Rotterdam The Netherlands Tel.: +31.(0)10.4088900 Fax: +31.(0)10.4089031 Most TI discussion papers can be downloaded at http://www.tinbergen.nl Competitive Bidding in Auctions with Private and Common Values Jacob K. Goeree and Theo Offerman* November 1999 ABSTRACT The objects for sale in most auctions display both private and common value characteristics. This salient feature of many real-world auctions has not yet been incorporated into a strategic analysis of equilibrium bidding behavior. This paper reports such an analysis in the context of a stylized model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value results in lower efficiency and higher profits for the winning bidder. Information provided by the auctioneer decreases uncertainty, which improves efficiency and increases the seller’s revenue. These positive effects of public information disclosure are stronger the more precise the information. Efficiency and revenues are also higher when more bidders enter the auction. Since our model nests both the private and common value case it may lead to an improved specification of empirical models of auctions.