The Bidding Game
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The Bidding Game
Alexander Sheu Wed May 13, 2009 8:49 pm
National Academy of Sciences: "The Bidding Game - Which Auction is Best?"
This article gives an overview of the history and future of bidding, providing some interesting examples and explanations along the way. It starts by talking about "the greatest auction ever" which occurred in 1994, when the Federal Communications Commission (FCC) made $42 billion by selling licenses for frequency spectra to communications companies. the FCC consulted experts in game theory to optimize the auction for efficiency and profit, and the theories proved to be successful.
In 1961, William Vickrey (Columbia University, NY) wrote a paper to analyze English, Dutch, sealed first-price auctions, and designed the sealed second-price auction. The English auction is the traditional "going, going, gone" auction where prices go up, and the highest bidder wins. In a Dutch auction, the price starts high and drops until the first person i willing to pay the price. In a first-price auction, individuals submit sealed bids, and the highest bidder wins, paying that bid. The second-price auction is when participants submit sealed bids, and the highest bidder wins, paying the amount of the second-highest bid.
The sealed second-price auction has the optimal bidding strategy of paying the amount that the individual values the object.
However, Vickrey showed that regardless of the auction type, the seller can expect the same amount of revenue. This is true as long as the winner is the person who values it most. Note that this is not true for eBay; the constant revenue is only true when bidders don't pay or receive any money (fee or reward for entering auction).
Vickrey's work was a basis for many analyses of auctions; however, real auctions are nonideal. For example, bidders often affect each other's values for items. Game theory is very good for the analysis of ideal situations and for thinking about how games may work, but in real life, these theories are far from perfect.
An unrelated excerpt from the article that I found interesting is below:
This article gives an overview of the history and future of bidding, providing some interesting examples and explanations along the way. It starts by talking about "the greatest auction ever" which occurred in 1994, when the Federal Communications Commission (FCC) made $42 billion by selling licenses for frequency spectra to communications companies. the FCC consulted experts in game theory to optimize the auction for efficiency and profit, and the theories proved to be successful.
In 1961, William Vickrey (Columbia University, NY) wrote a paper to analyze English, Dutch, sealed first-price auctions, and designed the sealed second-price auction. The English auction is the traditional "going, going, gone" auction where prices go up, and the highest bidder wins. In a Dutch auction, the price starts high and drops until the first person i willing to pay the price. In a first-price auction, individuals submit sealed bids, and the highest bidder wins, paying that bid. The second-price auction is when participants submit sealed bids, and the highest bidder wins, paying the amount of the second-highest bid.
The sealed second-price auction has the optimal bidding strategy of paying the amount that the individual values the object.
However, Vickrey showed that regardless of the auction type, the seller can expect the same amount of revenue. This is true as long as the winner is the person who values it most. Note that this is not true for eBay; the constant revenue is only true when bidders don't pay or receive any money (fee or reward for entering auction).
Vickrey's work was a basis for many analyses of auctions; however, real auctions are nonideal. For example, bidders often affect each other's values for items. Game theory is very good for the analysis of ideal situations and for thinking about how games may work, but in real life, these theories are far from perfect.
An unrelated excerpt from the article that I found interesting is below:
Consider, for example, a three-person “duel” in which Alex, Barbara, and Chris will fire simultaneous gunshots at each other once every minute. Alex and Barbara are sharp-shooters who hit their target 99 out of 100 times. Chris, however, only makes his shot 30 percent of the time. Surprisingly, if all the players follow their equilibrium strategies, Chris is the most likely to survive! Alex and Barbara’s equilibrium strategy is to fire first at each other, since it is in their best interest to kill their most dangerous opponent first. The most likely outcome is that Alex and Barbara will kill each other on the first shot, and Chris will escape unharmed.
Alexander Sheu- Posts : 31
Join date : 2009-03-31 -
bidding strategy: don''t bid. yet...
tjhannemann Thu May 14, 2009 5:46 pm
The above link is the Wikipedia paWikipedia: Auction Sniping
The above link is the Wikipedia page about Auction Sniping. That's when bidders wait until the last minute to place bids in auctions with fixed end times (like on ebay). We havn't discussed timed or sequential bidding in class, so this is an interesting and very real twist on ideal auctions. Waiting until the last minute to bid allows bidders to avoid bidding wars, which allows the winner to win with a lower bid. Sellers usually object.
The above link is the Wikipedia page about Auction Sniping. That's when bidders wait until the last minute to place bids in auctions with fixed end times (like on ebay). We havn't discussed timed or sequential bidding in class, so this is an interesting and very real twist on ideal auctions. Waiting until the last minute to bid allows bidders to avoid bidding wars, which allows the winner to win with a lower bid. Sellers usually object.
tjhannemann- Posts : 11
Join date : 2009-04-01
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» auctions bidding
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