Ebook Intermediate microeconomics - A modern approach (8E): Part 2
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Ebook Intermediate microeconomics - A modern approach (8E): Part 2
CHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2 to fresh flowers, are sold using auctions.Economists became interested in auctions in the early 1970s when the OPEC oil cartel raised the price of oil. The U.S. Department of the Interior decided to hold auctions to sell the right to drill in coastal areas that were expected to contain vast amounts Ebook Intermediate microeconomics - A modern approach (8E): Part 2 of oil. The government asked economists how to design these auctions, and private firms hired economists as consultants to help them design a biddingEbook Intermediate microeconomics - A modern approach (8E): Part 2
strategy. This effort prompted considerable research in auction design and strategy.More recently, the Federal Communications Commission (FCC) decideCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ts played a major role in the design of both the auctions and the strategics used by the bidders. These auctions were hailed as very successful public policy, resulting in revenues to the U.S. government of over twenty-three billion dollars to date.Other countries have also used auctions for privati Ebook Intermediate microeconomics - A modern approach (8E): Part 2zation projects. For example, Australia sold off several government-owned electricity plants, and Xcw Zealand auctioned off parts of its state-owned tEbook Intermediate microeconomics - A modern approach (8E): Part 2
elephone system.316 AUCTIONS (Ch. 17)Consumer-oriented auctions have also experienced something of a renaissance on the Internet. There are hundreds oCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2r forty-one million dollars worth of merchandise sold in 1997.17.1Classification of AuctionsThe economic classification of auctions involves two considerations: first, what is the nature of the good that is being auctioned, and second, what are the rules of bidding? With respect to the nature of the Ebook Intermediate microeconomics - A modern approach (8E): Part 2 good, economists distinguish between private-value auctions and common-value auctions.In a private-value auction, each participant has a potentiallyEbook Intermediate microeconomics - A modern approach (8E): Part 2
different value for the good in question. A particular piece of art may be worth $500 to one collector, $200 to another, and $50 to yet another, depenCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ve different estimates of that common value. The auction for off-shore drilling rights described above had this characteristic: a given tract either had a certain amount of oil or not. Different oil companies may have had different estimates about how much oil was there, based on the outcomes of the Ebook Intermediate microeconomics - A modern approach (8E): Part 2ir geological surveys, but the oil had the same market value regardless of who won the auction.We will spend most of the time in this chapter discussiEbook Intermediate microeconomics - A modern approach (8E): Part 2
ng private-value auctions, since they are the most familiar case. At the end of the chapter, we will describe some of the features of common-value aucCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ch is the lowest price at which the seller of the good will part with it.1 Bidders successively offer higher prices: generally each bid must exceed the previous bid by some minimal bid increment. When no participant is willing to increase the bid further, the item is awarded to the highest bidder.An Ebook Intermediate microeconomics - A modern approach (8E): Part 2other form of auction is known as a Dutch auction, due to its use in the Netherlands for selling cheese and fresh flowers. In this case the auctioneerEbook Intermediate microeconomics - A modern approach (8E): Part 2
starts with a high price and gradually lowers it by steps until someone is willing to buy the item. In practice, the "auctioneer" is often a mechanicCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2s as the auction progresses. Dutch auctions can proceed very rapidly, which is one of their chief virtues.Yet a third form of auctions is a sealed-bid auction. In this type of auction, each bidder writes down a bid on a slip of paper and seals it in an envelope. The envelopes arc collected and opene Ebook Intermediate microeconomics - A modern approach (8E): Part 2d, and the good is awarded to the person with the highest bid who then pays the auctioneer the amount that he or she bid. If there is a reserve price,Ebook Intermediate microeconomics - A modern approach (8E): Part 2
and all bids are lower than the reserve price, then no one may receive the item.Scaled-bid auctions are commonly used for construction work. The persCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ith the lowest bid.Finally, we consider a variant on the sealed bid-auction that is known as the philatelist auction or Vickrey auction. The first name is due to the fact that this auction form was originally used by stamp collectors: the second name is in honor of William Vickrey, who received the Ebook Intermediate microeconomics - A modern approach (8E): Part 21996 Nobel prize for his pioneering work in analyzing auctions. The Vickrey auction is like the sealed-bid auction, with one critical difference: theEbook Intermediate microeconomics - A modern approach (8E): Part 2
good is awarded to the highest bidder, but at the second-highest price. In other words, the person who bids the most gets the good, but he or she onlyCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ome very nice properties.17.2Auction DesignLet us suppose that we have a single item to auction off and that there are n bidders with (private) values t'i,....cn. For simplicity, we assume that the values are all positive and that the seller has a zero value. Our goal is to choose an auction form to Ebook Intermediate microeconomics - A modern approach (8E): Part 2 sell this item.This is a special case of an economic mechanism design problem. In the case of the auction there are two natural goals that wo might hEbook Intermediate microeconomics - A modern approach (8E): Part 2
ave in mind:•Pareto efficiency. Design an auction that results in a Pareto efficient outcome.•Profit maximization. Design an auction that yields the hCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2 hard to see that Pareto efficiency requires that the good be assigned to the person with the highest value. To see this, suppose that person 1 has the highest value and person 2 has318 AUCTIONS (Ch. 17)some lower value for the good. If person 2 receives the good, then there is an easy way to make b Ebook Intermediate microeconomics - A modern approach (8E): Part 2oth 1 and 2 better off: transfer the good from person 2 to person 1 and have person 1 pay person 2 some price p that lies between t'l and v-2- This shEbook Intermediate microeconomics - A modern approach (8E): Part 2
ows that assigning the good to anyone but the person who has the highest value cannot be Pareto efficient.If the seller knows the valuesthe auction deCHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2ge him or her that value. If the desired goal is Pareto efficiency, the person with the highest value should still get the good, but the price paid could be any amount between that person’s value and zero, since the distribution of the surplus does not matter for Pareto efficiency.The more interesti Ebook Intermediate microeconomics - A modern approach (8E): Part 2ng case is when the seller does not know the buyers’ values. How can one achieve efficiency or profit maximization in this case?First consider ParetoEbook Intermediate microeconomics - A modern approach (8E): Part 2
efficiency. It is not hard to see that an English auction achieves the desired outcome: the person with the highest value will end up with the good. ICHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computers Ebook Intermediate microeconomics - A modern approach (8E): Part 2s, the minimal bid increment.Think of a specific case where the highest value is. say Si00. the second-highest value is S80. and the bid increment is, say. $5. Then the person with the $100 valuation would be willing to bid $85. while the person with the $80 value would not. Just as we claimed, the Ebook Intermediate microeconomics - A modern approach (8E): Part 2person with the highest valuation gets the good, at the second highest price (plus, perhaps, the bid increment). (We keep saying "perhaps" since if boEbook Intermediate microeconomics - A modern approach (8E): Part 2
th players bid $80 there would be a tie and the exact outcome would depend on the rule used for tie-breaking.)CHAPTER17AUCTIONSAuctions arc one of the oldest form of markets, dating back to at least 500 BC. Today, all sorts of commodities, from used computersGọi ngay
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