13. Auctions

Reading for Today

• Thinking Strategically (Avinash Dixit and Barry Nalebuff), Chapter 12, Incentives, pp. 319-325.
• McMillan, John, ``Bidding in Competition,'' pp. 133-149 of Games, Strategies, and Managers, Oxford: Oxford University Press, 1992.
• "The Bank of Sweden Prize in Economic Sciences in Honor of Alfred Nobel 1996," (Mirrlees, Vickrey), Nobel Foundation press release, October 8,1996, http: //www.nobel.se/economics/laureates/1996/press.html.

Antithesis: The big problem is to win the auction without paying much more than the next highest bidder.

Topics That Might be Discussed in Class

• Auctions vs. Bargaining
• Private Versus Common Value Auctions
• Open vs. Sealed-Bid Auctions
• The Winner's Curse
• Bidding Conspiracies

For Next Time

• Rasmusen, Eric, "Strategic Implications of Uncertainty Over One's Own Private Value in Auctions," Indiana University, Dept. of Business Economics and Public Policy, October 31, 2001, http: //php.indiana.edu/~erasmuse/papers/auction.pdf (November 19, 2001) .
• Roth, Alvin E. & Axel Ockenfels (2000) ``Last Minute Bidding And The Rules For Ending Second-Price Auctions: Theory And Evidence From A Natural Experiment On The Internet,'' NBER Working Paper 7729, June 2000, http: //www.nber.org/papers/w7729 .

Additional Material

• Agora Market Design, Inc. Principals-- for how theory and practice mix.
• The powerpoint slides and latex-pdf slides on auction rules, optimal sealed-bid bidding, and key lessons.
• Rasmusen, Eric, "Managerial Conservatism and Rational Information Acquisition, " Journal of Economics and Management Strategy (Spring 1992) 1: 175-202. In Acrobat. How the winner's curse explains the use of high hurdle rates in capital budgeting.

Return to the Thinking Strategically Home Page at http://pacioli.bus.indiana.edu/erasmuse/g570/g570.htm. Send comments to Prof. Rasmusen. Last updated: April 24, 2002.