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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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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.
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 ...
The most straightforward form of an all-pay auction is a Tullock auction, sometimes called a Tullock lottery after Gordon Tullock, in which everyone submits a bid but both the losers and the winners pay their submitted bids. [5] This is instrumental in describing certain ideas in public choice economics. [citation needed]
In auction theory, particularly Bayesian-optimal mechanism design, a virtual valuation of an agent is a function that measures the surplus that can be extracted from that agent. A typical application is a seller who wants to sell an item to a potential buyer and wants to decide on the optimal price.
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