E312. Lecture 23
Thursday 17 November 2005
Assignments: Work HW problem 10 (I won’t collect it)
Test, TUESDAY.
REVIEW
V. Auctions.
Review______
E. How do firms make Money?
F. How are goods sold? (This depends on the kind of goods for sale. Standard goods should be sold at posted prices. Goods with more individual characteristics (including items sold in bulk) might do better if sold in an auction format.
- Auction Contexts.
1. Private Value Auctions..
a. Some standard formats
b. Equivalence of Auction Forms. (But behaviorally, FPSB and Dutch auctions yield higher prices)
Preview______
c. Accommodating auctions to internet trading.
2. Common Value Auctions.
a. The winner’s curse
b. Adjusting for the winner’s curse.
3. Other Auction Format Issues
a. Reserve Prices.
b. Minimum bids.
c. Auction Duration
4. MultiUnit Auctions
G. Collusion on the Internet
Lecture______
c. Accommodating auctions to internet trading.
i. Assuring security and confidentiality
1. Paypal. A mechanism to insure that payments are made and that goods are delivered.
2. Ratings Schemes. A mechanism for assuring the quality of buyers and sellers.
ii. Adjusting to last minute bids. The problem is that in a “live” auction sellers are not monitoring the close. Thus rivals have an incentive to issue last minute bids.
1. “Vickreyfing” Auctions (with bid elves). The idea here is to post a maximum price that you’re willing to pay, and authorize automatic increases for any bid that exceeds your current bid up to your pre-specified limit. This is the way Ebay resolves this problem. However, bidders must trust the “house” a great deal for this to work.
2. Extending auction Deadlines. A “soft” landing. Here, if any bid is received in the last x minutes prior to the close, bidding will be extended for another x minutes. This can avoid an absolute collapse of bids on the final seconds, however, it does not resolve the need for all interested participants to all watch the auction close.
2. Common Value Auctions. An alternative problem. Everyone values the item equally, but that common value is unknown, and bidders get only estimates of values.
a. The winner’s curse. The bidder making the biggest mistake in valuing the item is the one who wins, but suffers a lost ex post.
b. Adjusting for the winner’s curse. In theory, with an appropriate amount of information regarding the underlying bid distribution, sellers can adjust their bids for the winner’s curse. However, numerous instances exist in where bidders suffers ex post losses (e.g. U.S. Timber auctions, licenses for OCS drilling rights, Spectrum auctions)