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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.
Early research on auctions focused on two special cases: common value auctions in which buyers have private signals of an items true value and private value auctions in which values are identically and independently distributed. Milgrom and Weber (1982) present a much more general theory of auctions with positively related values.
Popularized by the reverse auction pioneer, Priceline.com, such pricing strategy asks consumers to 'name their own price' for various products and services like air tickets, hotels, rental cars, etc. [4] The first bid a consumer places and the subsequent bid increments express the consumer's willingness or unwillingness to haggle. "The economic ...
Auctions however, have been recorded as far back as 500 B.C. Deriving from the Latin word augēre, which means "to increase" or "to augment". [6] Auctions have since been widely used as a method of liquidating assets, and have evolved into many different variations. The most successful current form of auctions is based on the Internet, such as ...
A classic example is the pair of auction mechanisms: first price auction and second price auction. First-price auction has a variant which is Bayesian-Nash incentive compatible; second-price auction is dominant-strategy-incentive-compatible, which is even stronger than Bayesian-Nash incentive compatible. The two mechanisms fulfill the ...
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.
In an auction, bid shading is the practice of a bidder placing a bid that is below what they believe a bid is worth. [1] [2] Bid shading is used for one of two purposes. In a common value auction with incomplete information, bid shading is used to compensate for the winner's curse. In such auctions, the good is worth the same amount to all ...
The generalized second-price auction (GSP) is a non-truthful auction mechanism for multiple items. Each bidder places a bid. The highest bidder gets the first slot, the second-highest, the second slot and so on, but the highest bidder pays the price bid by the second-highest bidder, the second-highest pays the price bid by the third-highest, and so on.