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Auction theory is a branch of applied economics that deals with how bidders act in auctions and researches how the features of auctions incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost.
An auction algorithm has been used in a business setting to determine the best prices on a set of products offered to multiple buyers. It is an iterative procedure, so the name "auction algorithm" is related to a sales auction, where multiple bids are compared to determine the best offer, with the final sales going to the highest bidders.
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Vickrey was the first to use the tools of game theory to explain the dynamics of auctions. [5] In his seminal paper, Vickrey derived several auction equilibria, and provided an early revenue-equivalence result. The revenue equivalence theorem remains the centrepiece of modern auction theory. The Vickrey auction is named after him. [5]
In fact, we can use revenue equivalence to prove that many types of auctions are revenue equivalent. For example, the first price auction, second price auction, and the all-pay auction are all revenue equivalent when the bidders are symmetric (that is, their valuations are independent and identically distributed).
A VCG mechanism can also be used in a double auction. It is the most general form of incentive-compatible double-auction since it can handle a combinatorial auction with arbitrary value functions on bundles. Unfortunately, it is not budget-balanced: the total value paid by the buyers is smaller than the total value received by the sellers.
The linkage principle is a finding of auction theory. It states that auction houses have an incentive to pre-commit to revealing all available information about each lot, positive or negative. The linkage principle is seen in the art market with the tradition of auctioneers hiring art experts to examine each lot and pre-commit to provide a ...
Download as PDF; Printable version; In other projects ... Auction theory (2 C, 19 P) Pages in category "Auctions"