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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.
Vijay Krishna, Auction Theory, Academic Press, 2002. Peter Cramton, Yoav Shoham, Richard Steinberg (Eds), Combinatorial Auctions, MIT Press, 2006, Chapter 1. ISBN 0-262-03342-9. Paul Milgrom, Putting Auction Theory to Work, Cambridge University Press, 2004. Teck Ho, "Consumption and Production" UC Berkeley, Haas Class of 2010.
In auction theory and mechanism design, Border's theorem gives a necessary and sufficient condition for interim allocation rules (or reduced form auctions) to be implementable via an auction. It was first proven by Kim Border in 1991, [1] expanding on work from Steven Matthews, [2] Eric Maskin and John Riley. [3]
Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory. The open ascending price auction is arguably the most common form of auction and has been used throughout history. [1]
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 ...
Milgrom is an expert in game theory, specifically auction theory and pricing strategies. He is the winner of the 2020 Nobel Memorial Prize in Economic Sciences, together with Robert B. Wilson, "for improvements to auction theory and inventions of new auction formats". [2] [3] He is the co-creator of the no-trade theorem with Nancy Stokey.
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]
Revenue equivalence is a concept in auction theory that states that given certain conditions, any mechanism that results in the same outcomes (i.e. allocates items to the same bidders) also has the same expected revenue.