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20.1: English Auction
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- What is the most common auction form?
- How should I bid in an auction if I know my own value?
- When we share a value that none of us know, should I bid my estimate of value?
- An auction is a trading mechanism where the highest bidder wins an object. Auctions are typically used when values are uncertain, and thus information is an important aspect of analyzing auctions.
- Private values mean bidders know their own value.
- Common values mean bidders share a common but unknown value, and they have some indication or signal about the value. With common values, willingness to pay by one bidder is informative for other bidders.
- In an English auction, the auctioneer starts low and calls out prices until no bidder is willing to bid higher than the current high price. At that point the auction ends, and the highest bidder wins.
- In a private values setting, the English auction has a dominant strategy: remain bidding until one’s value is reached.
- When bid increments are small and bidders have private values, the bidder with the highest value wins the bidding at a price equal to the second-highest value.